Investment Highlights

• We maintain BUY call on Bermaz Auto (BAuto) with a higher fair value (FV) of RM3.29/share from RM3.10/share previously due to higher earnings estimates, based on an unrevised FY24F target P/E of 12x, in line with its 5-year mean. The neutral ESG rating of 3-star is unchanged.

• Our FY24F-FY25F revenue was adjusted slightly higher by 1% following a more stable supply in CBU models as the company gradually shifts the bulk of its car imports from Japan to Thailand. Moreover, the depreciation of Japanese yen against the Malaysian ringgit will further support the improved outlook for BAuto’s earnings.

• Also, our FY24F-FY25F earnings increased by 2%-3% as we foresee a boost in CX-8 CKD sales since BAuto is expected to launch promotional activities. The model currently delivers the highest profit margin. On average, CKD commands a margin that is 3% points greater than CBU. At present, the ratio of CKD stands at 80% and 20% for CBU.

• Based on Malaysia Automotive Association (MAA), Mazda marques recorded significant YTD sales of 13k units in August (+34.1% YoY). The sales mainly comprised CX5 and CX30, whereby both models are roughly averaging at 450 units per month. Sales growth is expected to persist despite the post-SST exemption back in June 2022, primarily due to a large order backlogs and strong booking orders with currently over 1.3k bookings on average per month.

• In view of these favorable conditions, BAuto’s group sales are on track to achieve our FY24F sales volume assumption of 23k units (+16.8% YoY), mainly driven by improvement in Mazda sales. Despite the recent underperformance of Kia and Peugeot sales, BAuto has upcoming plans to introduce new models to bolster sales for both marques.

• Meanwhile, our FY25F sales volume has been raised by 3% to 23.5k. We have increased sales estimates for Mazda models CX5 and CX30, whereby contributions will only be seen in 3Q24 onwards. The CX5 model will undergo a facelift with substantial improvement in interior specifications whereas there will be an increase in CX-30 stocks to cater for growing demand.

• BAuto’s current foreign shareholding of 30.6% in September 2023 marked a 16.3% increase from June 2023 as extensive overseas roadshows were fruitful in promoting its quality products/services and savvy management team.

• The group currently trades at a compelling FY24F PE of 8x versus its 5-year average of 12x with an attractive FY24F dividend yield of 8%.

Source: AmInvest Research - 10 Oct 2023