Bermaz Auto’s (BAuto) 3QFY23 net profit more than doubled YoY to RM87.3m, mainly attributable to the continued fulfilment of substantial backorders received prior to the expiry of the sales tax exemption (SST) incentives in June 2022. Cumulative 9MFY23 results beat both our and consensus expectations, accounting for 105.8% and 94.9% of full-year estimates respectively. The discrepancy with our numbers was mainly due to robust deliveries of order backlogs despite on-going supply chain constraints. It was further boosted by better margin on sales mix, favorable movement in foreign exchange and higher share of results from its associates. We adjust our FY23-25 forecast upwards by an average of 20% to account for the still strong order backlogs of about 6,800 units, and strong demand despite absence of tax waivers, encouraged by the Group’s promotional measure to absorb 50% of the sales tax for vehicle bookings made between July and Dec 2022. Consequently, our TP is revised higher to RM2.42 (previously RM2.20). We retain our Neutral call however given limited upside to our revised TP. On a side note, BAuto declared a third interim dividend of 4.5 sen per share, bringing total dividend declared for FY23 to 11.0 sen, translating to a payout ratio of 63% (9MFY22: 4.3 sen at 64% payout ratio).

• Revenue for 3QFY23 increased to RM976.0m (+56.6% YoY, +24.6% QoQ) mainly due to continued fulfilment of huge back orders received prior to the expiry of the sales tax exemption on 30 June 2022. Total sales volume for 3QFY23 increased to 5,696 units (+46.9% YoY, +34.7% QoQ), mainly led by Mazda CKD models which increased to 3,732 units (+46.9% YoY, +34.7% QoQ). During the quarter, sales of Kia models increased by 63% QoQ to 622 units (2QFY23: 381 units) though Peugeot sales dipped by 41% QoQ to 371 units (2QFY23: 629 units).

• Net profit for 3QFY23 surged more than two-fold to RM87.3m (+114.4% YoY, +30.9% QoQ), in line with the increase in overall sales volume and further boosted by higher contribution from Philippines’ operation as well as its associated company, Mazda Malaysia SB (MMSB). It was also aided by better margin from the change in composition of sales mix and strengthening of the MYR against JPY. Operating margin improved by 2.1 ppt to 10.1% mainly due to better margin from the Group’s product sales mix.

• New CKD to drive growth. BAuto recently launched its locally assembled (CKD) CX-30 on 8 March 2023. It is currently the third most popular model for Mazda, accounting for about 8% of its sales volume in 3QFY23, after Mazda CX-5 and Mazda CX-8 which makes up 56% and 16% respectively. The Group also recently launched the all-new Kia Sorento (CKD) on 3 March 2023. The CKD models are expected to drive volume growth for the Group. Besides meeting domestic demand, the Group stands to benefit from the export market for these CKD models.

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

• Outlook. While the car sales are poised to remain strong in 1Q 2023 on the back of high order backlogs and robust deliveries, the longer-term outlook for Malaysia’s auto sector appears to be mixed. Total industry volume (TIV) is likely to taper off once SST-exempted bookings are exhausted by March 2023. MAA is projecting a lower TIV of 650k in 2023 (-9.7% YoY) after a record-high TIV of 720k in 2022, considering expiry of SST holiday, sticky inflation and rising interest rate environment which could dampen consumer confidence.

Source: PublicInvest Research - 14 Mar 2023