• 1QFY23 core NP was in line at 28%/29% of our/consensus FY23F core NP.
• Core net profit rose 4.4x yoy on stronger sales volume and higher share of associate profit. 3.0 sen first interim DPS declared for 1QFY23.
• We expect BAuto to maintain a healthy sales volume in 2QFY23F on the back of a robust order backlog. Reiterate Add with an unchanged RM2.40 TP.

1QFY4/23 sales rose 2.2x yoy, core net profit up 4.4x yoy

Bermaz Auto’s (BAuto) 1QFY4/23 revenue surged 2.2x yoy to RM717m, driven by stronger sales volume from its Malaysian and Philippine operations, which jumped 2.4x and 34% yoy respectively. It attributed the higher sales to 1) expansion in its new models offering following the addition of Kia and Peugeot marques, and 2) Malaysian consumers rushing to register new vehicles before the expiry of the sales and service tax (SST) exemption grace period. 1QFY23 EBIT margin expanded 5% pts yoy to 9.8%, mainly due to: 1) better operating leverage from higher sales volume, 2) a turnaround in its Philippine operation, 3) higher share of profit from 30%-owned Mazda Malaysia Sdn Bhd (MMSB) on the back of higher sales volume, and 4) favourable forex movement following the appreciation of ringgit against the Japanese yen. Overall, 1QFY23 core net profit jumped 4.4x yoy to RM51.3m (1QFY22: RM11.7m). It declared its first interim DPS of 3.0 sen for the quarter (1QFY22:
0.5 sen).

Sequentially lower sales volume due to ongoing parts shortages

Revenue in 1QFY4/23 slid 20% qoq mainly due to the ongoing shortages of semiconductor chips and components, extended lockdown in China and disruption in global supply chain which had impacted Mazda sales volume. However, this was partially offset by higher sales from new marques like Kia with the introduction of Carnival CKD programme in the quarter.

Projecting 24% sales volume growth in FY23F

We expect BAuto to maintain its growth momentum in FY4/23F, driven by its robust order backlog. BAuto had an outstanding order backlog of about 8.5k units for Mazda as of 12 Sep. In addition, the group is also absorbing 50% of the SST increase from Jul till year-end for new bookings under Mazda, Kia and Peugeot. We believe this will provide a healthy order bank going into CY23F. Overall, we project the group to deliver 13k sales volume for Mazda, and 4k for Kia and Peugeot combined, translating to 24% volume growth in FY4/23F. Moreover, we see upside to BAuto’s sales volume once it kicks off the local assembly of new sports utility vehicles (SUVs) for Mazda and Kia at Inokom by 4QCY22F.

Reiterate Add with an unchanged RM2.40 TP

Reiterate Add rating on BAuto with an unchanged RM2.40 TP, based on 14x CY23F P/E, in line with our target sector P/E. The stock trades at an attractive CY23F P/E of 10.7x, more than 0.5 s.d. below its 5-year mean P/E of 14x. BAuto also offers a decent 5.2-5.8% dividend yield for CY22-23F, supported by strong free cash flow and net cash position of RM462m or RM0.40/share as at end-Jul 22.

Source: CGS-CIMB Research - 12 Sep 2022