Investment Highlights

• We maintain BUY on Bermaz Auto (BAuto) with an FV of RM2.30 based on a 13x PE on FY19F.

• Philippines president Rodrigo Duterte signed the first bill for tax reform on Thursday. Government revenue lost from reducing personal income taxes is meant to be recovered from higher levies on items such as petroleum and cars, local media reported.

• The law which will come into effect early next year will see excise taxes for cars priced P600K and below raised to 4% (from 2%), 10% for cars from P600K-P1mil (from a fee of P12K next to 20% on the balance), 20% for cars from P1mil-P4mi, and 50% for cars above P4mil. Electric vehicles and pick-ups are excluded from the excise tax, and hybrid cars will see half the charge.

• Our checks with BAuto indicate that Mazda prices in Philippines will be raised by an average of 4-5% to maintain its margins. It expects there to be a short-term impact on volume that could stabilize after 3-4 months. However, the group will monitor for any major volume impact and tweak prices if necessary.

• The group had recently said it had stocked up on latest units of the CX-5 and CX-9 for BAP in anticipation of the higher excise tax. The two models would come in at the higher end of the range for excise taxes, but in terms of volume BAP sales are anchored to the M2 and M3 (which formed 62% of total FY17 sales).

• The group also said plans for the BAP IPO remain unchanged at this juncture.

• We reiterate that BAuto's return to solid ground is premised on seeing domestic sales, operating margins and associate earnings from MMSB. We maintain BUY on Bermaz Auto (BAuto) with an FV of RM2.30.

Source: AmInvest Research - 22 Dec 2017