• Bermaz Auto (BAuto) launched the new CX-5 today:

(1) Management guided that bookings have reached 700 units and exports will start in earnest in two months. Given this guidance, domestic sales from October should easily exceed 1K/month and surpass the tepid YTD average of 780 units/month.

(2) The new CX-5 is fairly priced from RM138K with five variants offered. The premium colours (Soul Red Crystal, Machine Grey and Snowflake White Pearl Mica) it now offers following the upgrade of its paintshop come with an additional RM2K.

The model sports various updates to its interior and exterior, although Mazda had wisely opted to "polish and mature" its strengths than go for a complete revamp. Pricing is similarly strategic: the new CX-5 is at most a 2% premium to its predecessor, and is cheaper than its immediate comparable (the CX-5 2L 2WD GL sells at RM138K vs. Honda CR-V 2L 2WD at RM143K; the CX-5 2.0L 2WD GLS at RM153K vs. Honda CR-V 1.5 Turbo at RM156K).

(3) There are two diesel variants on offer and BAuto will push these for both the local and exports markets. The higher price tags on the diesel options (they come at RM170K-RM180K) are paired with various exclusive safety features such as the lane departure warning system. Management said diesel cars were previously perceived to be noisier and consume much more fuel, and Mazda Japan had taken efforts to address these concerns in the new CX-5.

• We believe BAuto can accomplish its target to sell up to 500 units of the new CX-5 monthly (towards selling 13K units in FY18, up 23% YoY), with the goal of anchoring 50% of its total sales to the model (from 43% in its FY17). However, we note that it will not be an easy fight considering that its peers (most notably Toyota and Honda) have visibly ramped up their A&P.

• We reiterate a BUY on the following factors: (1) better sales in FY18, counting on a recovery in the three key models; (2) better margins going forward following the price revision made earlier this year, a stronger ringgit and with a smaller need to offer incentives for older models; (3) stronger associate earnings, following the addition of CX-5 exports.

• We maintain BUY on Bermaz Auto (BAuto) with an unchanged FV of RM2.30 based on an FY18F PE of 13x.

Source: AmInvest Research - 11 Oct 2017