Investment Highlights

• We maintain our BUY rating, earnings forecasts and fair value of RM3.42/share (based on 12x FY24F P/E at its historical 5-year mean) for Bermaz Auto (BAUTO). No change to our neutral 3-star ESG rating.

• BAUTO, our top pick for the auto sector, will release its 3QFY24 result on 13 March 2024 after market close.

• We forecast a 3QFY24 PATAMI of RM81.2mil (-6.9% YoY, - 9.8% QoQ). This brings our projected 9MFY24 PATAMI to RM271.5mil (+33.7% YoY), which is 82% of FY24F consensus.

• According to statistics from MAA, the number of car sales from Mazda and Kia grew by 3.5% YoY in 3QFY24 and 37% YoY for 9MFY24, which underpins the doubling of our FY24F PATAMI.

• The various new model launches have proven popular with good take up rates and pleasant reviews by customers in the social media.

• Forex movements were slightly unfavourable for BAUTO in 3QFY23 as JPY has appreciated by 1.4% against RM, which will have a minor profit margin impact given the group’s limited exposure to JPY-denominated CBU imports.

• Our forecast also incorporates a 3QFY24 DPS of 4.5sen (unchanged YoY) based on 64% payout. This brings the YTD DPS to 14.5 sen (+32% YoY) or a yield of 7.3%.

• Both the chairman and CEO filed for an intention to deal during closed period on 9 Feb.

• Our positive outlook on BAUTO is due to its:
  
  ➢ Impressive new model pipeline,
  
  ➢ Strong brand franchise with a highly loyal clientele,
  
  ➢ Strong balance sheet with industry-leading ROEs, and
  
  ➢ FY24F FCF yield of 8.7%, meaning BAUTO is in a comfortable position to raise its dividend payout from the current 60%.

• We expect management to reveal the full details on the return of Peugeot franchise to the Stellantis Group. We believe it is a clean divorce and do not anticipate any one- off cost associated to this transfer.

• The stock currently trades at 7.5x FY24 P/E, which is at a 37% discount to its 5-year historical average.

Source: AmInvest Research - 8 Mar 2024