Bermaz Auto Bhd (BAuto) ended FY23 with a 4QFY23 net profit of RM100.6m (+27.8% YoY), mainly due to increase in revenue and higher contribution from its new marque, Kia. Cumulative FY23 net profit almost doubled to RM303.7m (+95.9% YoY), beating both our and consensus expectations, accounting for 141.9% and 113.9% of full year estimates respectively. The discrepancy in our numbers was mainly due to better-than-expected 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. Given expiry of SST holiday and uncertainties surrounding global economies amid the rising interest rate environment, we expect TIV to normalise in the medium term. As such, we retain our FY24-26F earnings forecast. We maintain our Neutral rating on Bermaz with unchanged target price of RM2.42. On a side note, BAuto declared a final and special dividend of 3.5sen and 7.5sen per share respectively, bringing total dividend declared for FY23 to 22.0 sen, translating to a payout ratio of 84% (12MFY22: 8.8sen at 66% payout ratio)

• Revenue for 4QFY23 increased to RM1,072.4m (+19.5% YoY, +9.9% QoQ) mainly due to final rush to register the balance unfulfilled backorders in Feb and March 2023 in order to be eligible for the sales tax (SST) exemption incentives. Total sales volume for 4QFY23 increased to 6,322 units (+12.5% YoY, +9.6% QoQ), mainly led by Mazda CKD models which increased to 5,157 units (+5.9% YoY, +8.0% QoQ). During the quarter, sales of Kia models increased by 19.5% QoQ to 743 units (3QFY23: 622 units) while Peugeot sales increased by 13.7% QoQ to 422 units (3QFY23: 371 units).

• Net profit for 4QFY23 increased to RM100.6m (+27.8% YoY, +15.3% 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) and lower effective tax rate. It was also aided by healthy margin from composition of sales mix and strengthening of the MYR against JPY. Operating margin maintained at 11.8% compared to 11.9% in the same quarter last year.

• Mazda CX-30 sales on the rise. Since BAuto launched its locally assembled (CKD) CX-30 on 8 March 2023, it has become one of the most popular models for Mazda, accounting for about 32.3% of its sales volume in 4QFY23, followed by Mazda CX-5 and Mazda CX-8 which makes up 31.9% and 14.4% respectively. The CKD models are expected to drive volume growth for the Group. Besides meeting domestic demand, the Group also stands to benefit from the export market for these CKD models.

• New launches ahead. The Mazda CX-60 is currently being studied by the Group, for a potential launch in Malaysia. 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 (TBA) and all-new Niro EV (3QCY23). Peugeot current line-ups are the 2008, 3008, 5008 SUVs and pickup truck, Landtrek. Upcoming models for Peugeot including the new e-2008 EV (3QCY23) and new 408 (TBA).

• Outlook. Malaysia 1Q2023 TIV surged 20% YoY to 192,500 units on the back of high order backlogs as the Ministry of Finance (MOF) extended the vehicle registration deadline to 31 March 2023 to enable car buyers who booked their vehicles by 30 June 2022 to still enjoy the SST exemption. Post-SST exemption, Apr 2023 TIV dipped 41% MoM to46,600 units compared to all time high of 78,800 units in March 2023 as it was the final month for car companies to fulfil bookings made during the SST exemption period. TIV is expected to normalise moving forward. The Malaysian Automotive Association (MAA) is projecting a TIV of 650,000 in 2023F (-9.7% YoY) considering the expiry of SST holiday, rising interest rate environment and increase in car prices may dampen consumer confidence. On a positive note, the auto chip shortages continue to abate, with encouraging signs that sales orders remain healthy, underpinned by new model launches. BAuto has recently launched its Mazda CX-30 (CKD), the all-new Sorento (CKD) and Peugeot Landtrek in March and target to launch Kia Niro EV and e-2008 EV in 3Q this year.

Source: PublicInvest Research - 13 Jun 2023