Bermaz Auto (BAuto) reported lower 1QFY21 revenue and net profit, dropping by 16% and 82% YoY respectively. Net profit for 1QFY21 declined to RM9.2m from RM50.5m in 1QFY20, accounting for only 7% and 6% of our and consensus’ estimates respectively. This was mainly due to lower YoY sales volume of Mazda vehicles in both domestic (-18%) and Philippines’ (-66%) markets owing to the Covid-19 pandemic. Its associate, Mazda Malaysia Sdn Bhd (MMSB) also reported a loss of RM3.7m, dragging Group net margins to 2% (1QFY20: 9.7%). We adjust downward our earnings forecast for FY21-23F by c.11% to account for lower vehicle sales. Our PE-derived valuation is revised to RM1.46 (previously RM1.47), as we roll over to FY22F estimates. Since our last report, share price has declined by 15%, validating our Trading Sell call. Given a 4% upside to our current TP however, we upgrade our call to Neutral. Although we anticipate slower vehicle sales to continue in FY21, the economic stimulus packages introduced by the Malaysian Government should help to partly soften the impact of Covid-19. During the quarter, BAuto declared a first interim dividend of 0.50 sen (1QFY20: 3.25 sen).

• Revenue (-16% YoY, +50% QoQ). Revenue for 1QFY21 declined 16% YoY to RM449m on the back of lower vehicle sales volume in the domestic (-18%) and Philippines (-66%) markets. We understand that the Group had resumed its domestic operations from 4th May 2020, while Philippines’ restarted from 1st June 2020. Trading conditions remain challenging however as consumers are cautious in their big-ticket spending. Nevertheless QoQ revenue has improved by 50% mainly due to increased sales volume in the Malaysian market (+68%) due to initiatives by the Government through sales tax exemption (i.e. 100% on locally-built (CKD) models and 50% on imported (CBU) models) from 15 June to 31 December 2020.
• Net profit (-82% YoY, +276% QoQ). Net profit declined 82% YoY to RM9.2m, largely due to lower unit sales (-25%) and compressed margin arising from aggressive promotional campaigns (i.e. 6 years warranty and free maintenance) to boost sales. Its 30%-associate, MMSB also reported a marginal loss of RM3.7m during the quarter mainly due to the significant drop in unit sales (-94%) with minimal orders from both the domestic and export markets.
• Dividend. BAuto declared a first interim dividend of 0.50 sen (1QFY20: 3.25 sen), with entitlement date on 28 October 2020 and will be paid on 18 November 2020. This translates to a lower payout ratio of 63%, compared to last year’s payout of 73%.

Source: PublicInvest Research - 11 Sept 2020