Bermaz Auto’s (BAuto) 2QFY23 net profit soared more than doubled YoY to RM65.7m, mainly attributable to the increase in overall sales volume from the Group’s Mazda, Peugeot and Kia operations in Malaysia and low base effect in the corresponding quarter last year due to lockdown measures. Cumulative 6MFY23 results beat both our and consensus expectations, accounting for 81.6% and 62.5% of full-year estimates respectively. The discrepancy in our numbers was mainly due to robust deliveries of order backlogs despite on going supply chain constraints. We adjust our FY23-25 forecast upwards by 16-35% to account for elevated order backlogs of about 10k units and strong demand despite absence of tax waiver, though it was encouraged by the Group’s promotional campaign to absorb 50% of the sales tax for vehicle booking made between July and Dec 2022. Consequently, our TP is revised higher to RM2.20 (previously RM1.94). We retain our Neutral call however given limited upside to our revised TP. On a side note, BAuto declared a second interim dividend of 3.5 sen per share, bringing total dividend declared for FY23 to 6.5 sen, translating to a payout ratio of 65% (6MFY22: 2.0 sen at 64% payout ratio).

• Revenue for 2QFY23 increased to RM783.0m (+61.8% YoY, +9.2% QoQ) mainly due to continued fulfilment of huge back orders received prior to the expiry of the sales tax exemption on 30 June 2022 for all three marques in the Group (Mazda, Kia & Peugeot). Total sales volume for 2QFY23 increased to 4,665 units (+48.4% YoY, +8.6% QoQ) with Mazda CKD models increased to 2,771 units (+56.5% YoY, +47.5% QoQ). During the quarter, sales of Kia models dipped slightly to 381 units (4QFY22: 448 units) while Peugeot sales increased to 629 units (4QFY22: 474 units).

• Net Profit for 2QFY23 increased to RM65.7m (+152.2% YoY, +30.9% QoQ), in line with the increase in overall sales volume (Mazda, Kia & Peugeot) and further boosted by positive contribution from Philippines’ operation as well as its associated company, Mazda Malaysia SB. It was also aided by better margin and strengthening of the MYR against JPY. Operating margin improved by 3.8 ppt to 10.4% mainly due to better margin from the Group’s product sales mix.

• New launches ahead. Kia’s current line-ups are Carnival MPV, available in both fully imported (CBU) and locally assembled (CKD) model and EV6 (CBU). Upcoming models for Kia including all-new Sportage (4QCY23), all-new Sorento (1QCY23) and all-new Niro EV. Peugeot current line-ups are the 2008, 3008 and 5008 SUVs. Upcoming models for Peugeot including new pickup truck – Landtrek (1QCY23) and e-2008 EV (CBU) (1QCY23).

• Outlook. Car sales are poised to remain strong through to 1Q 2023 on the back of high order backlogs and robust deliveries. However, the longer-term outlook of Malaysia’s auto sector appears to be mixed. Total industry volume (TIV) likely to taper off once SST-exempted bookings are exhausted by March 2023. Additionally, production continues to be affected by on-going supply chain disruption as shortage of chips and components continued to affect certain models, though at a lesser extent. Oct 2022 TIV slowed down to 56.2k units (-3.6% YoY, -21.9% MoM) after strong TIV delivery of about 67.5k units in two consecutive month in Aug and Sept 2022. Other headwinds such as rising input cost, potentially tighter financing and the weak Malaysian Ringgit may erode consumer confidence and dampen demand for new vehicles.

Source: PublicInvest Research - 9 Dec 2022