Bermaz Auto (BAuto) recorded a marginal net profit of RM2.5m (-96% YoY) in 4QFY20, bringing its full year FY20 net profit to RM100.5m (-62% YoY). The results were below our and consensus expectations, accounting for 76% and 91% of full year estimates respectively. The discrepancy was mainly due to lower sales volume from both domestic and Philippines’ operations arising from the mandatory closure for about one and half months during the current quarter. We adjust downward our earnings forecast by c.6.5% for FY21-22F to account for lower vehicle sales volume. Consequently, our target price is revised to RM1.47 (previously RM1.59), based on 13x FY21F EPS. Given a 10% downside to our TP and our expectation of another quarter of subdued earnings performance, we downgrade our rating to Trading Sell. No dividend declared during the quarter, bringing its full year dividend per share to 7.45 sen (FY19: 21.25 sen). This translates to a payout ratio of 86% (FY19: 92%).

• Revenue for 4QFY20 declined 44% YoY to RM299.4m on the back of lower vehicle sales volume from both the domestic (-52%) and the Philippine operations (-51%). The drop in sales volumes was due to the mandatory closure of businesses by the Governments as a measure to curb the outbreak of the Covid-19 pandemic. To note, the Malaysian Government had imposed Movement Control Order (MCO) beginning from 18 March 2020 to 12 May 2020, which resulted in a 44-day closure of business operations of the Group in Malaysia in 4QFY20. Similarly, in the Philippines, the Philippine government also imposed Enhanced Community Quarantine (ECQ) from 17 March 2020 to 15 May 2020. For full year FY20, revenue fell 30% YoY to RM1.76bn (vs FY19: RM2.5bn) also due to the delay in delivery of the new facelift CX-5 and all new CX-8 models caused by resolution of certain pricing issues in the 1HFY20.

• Net profit. BAuto reported a marginal 4QFY20 net profit of RM2.5m (-96% YoY) due to lower vehicle sales arising from the mandatory closure for about one and half months for both domestic and Philippines’ operations. Simultaneously, it also reported lower share of associates’ contribution (-83% YoY), largely from Mazda Malaysia (MMSB). As a result, full year FY20 earnings declined by 62% YoY to RM100.5m, with EBIT margin dropped to 6%, compared to 11% in FY19.

• Outlook. We anticipate slower vehicle sales to continue in FY21F, as we believe uncertainties in current economic outlook may outweigh any plan for big ticket purchases. Nevertheless, economic stimulus packages introduced by the Malaysian Government (i.e. 100% sales tax exemption on locally build (CKD) models and 50% sales tax exemption on imported (CBU) models from 15 June to 31 December 2020), should help to partly soften the impact of Covid-19.

Source: PublicInvest Research - 12 Jun 2020