Investment Highlights

• We maintain a BUY and FV of RM2.60/share on Bermaz Auto (BAuto) based on an FY19F PE of 14x. 9MFY18 core net profit of RM90.3mil met our expectation but was below consensus: at 71% and 65% of the FY projections respectively.

• BAuto's exceptional 3QFY18 was anchored by the new CX-5: sales of the SUV soared in both Malaysia and the Philippines, and associate earnings tripled on a QoQ basis due to higher production volume by 30%-owned Mazda Malaysia (MMSB). Volume at MMSB reached a historical high of 4.6K units due to strong demand locally and the start of exports to certain ASEAN markets.

• Apart from sales, margins rebounded in 3Q from a stronger MYR (the yen-MYR average of 3.62 for the quarter was the lowest in nearly two years) and support from the CX-5 (for which prices were raised by RM1K from Jan, and half of its buyers opted to pay the extra RM2K for premium colours).

• 9MFY18 core net profit declined 3% despite a topline improvement of 9% YoY. This was due to the weakness in the lead-up to the new CX-5: margins fell as incentives were needed to clear out the older version, associate earnings were lacking prior to the production ramp-up and the ringgit only strengthened visibly against the yen in 3Q.

• For YTD, Malaysia sales fell 7%YoY as a stronger showing by the CX-5 and CX-9 was offset by weaker ones by the M3 (-22% YoY), M2 (-19% YoY) and the CX-3 (-17% YoY). The Philippines’ volume rose a remarkable 33% YoY in response to the CX-5 (+79% YoY) and M3 (+75% YoY), as well the introduction of CX- 9 from this FY.

• BAuto declared a third dividend of 2.30 sen/share, taking the YTD total to 5.40 sen/share. This results in a payout of 75% for 9M18 compared to the 101% previously.

• The group has staged a return to solid ground from securing better domestic sales, margins and associate earnings. To this end, we believe it is able to maintain the momentum for the CX- 5 to accomplish our target of 11.2K sales in FY18.

• The group is aiming for 14K-15K in FY19. Sales this quarter and in FY19 will see support from the MX-5 RF, CX-3 with GVC and M3 with GVC in April, M6 and CX-9 GVC in 3QCY18, and the CX-5 GVC in 4QCY18. The CX-8 SUV (a seven seater to be positioned above the CX-5) is eyed for Jul/Aug with localisation to start by end-2018.

Source: AmInvest Research - 13 Mar 2018