Reported a strong core PATMI of RM73.7m for 2QFY19, increased 6MFY19 PATMI to RM123.9m, in line with our expectation. Malaysia operation is expected to remain strong in 2HFY19 from the high backlog orders of CX-5, while the Philippines will remain weak before potential recovery in FY20-21. Recommended second interim dividend of 3.75sen/share. Maintain BUY with unchanged TP: RM2.70 based on 14x P/E CY20, as Bermaz is also in a net cash position of RM403m (34.7sen/share) with projected free cash-flow of RM150- 230m p.a., supporting Bermaz’s sustainable dividend payout of 15-19sen/share, translating into attractive 7.0-9.0% dividend yield.

Within expectation. Reported strong 2QFY19 core PATMI of RM73.7m, pushed 6MFY19 core PATMI to RM123.9m, as compare to HLIB FY19 forecast profit of RM217.9m (56.9%) and consensus RM201.2m (61.6%). We deem the result within expectation, as we expect the continued strong Malaysia operations to be partially dragged by the short-term weakening operations in the Philippines, affected by TRAIN tax reform.

Dividend. Recommended a second interim dividend of 3.75sen/share for the quarter, increasing YTD dividend payout to 6.25sen/share.

QoQ. Core PATMI jumped 46.9% on strong sales volume of Mazda models in Malaysia market (driven by CX-3 and CX-5) as well as the higher contribution from associates MMSB and Inokom, following the increased production volume of CX-5 in 2QFY19 in order to meet the high backlog orders in Malaysia market.

YoY/YTD. Core PATMI jumped 241.9% YoY and 216.6% YTD respectively on the significant Mazda sales growth in Malaysia market and higher Mazda CX-5 production volume, which was partially offset by the Mazda sales decline in the Philippines market.

Outlook. Bermaz Malaysia operation is expected to be sustainable for the remaining FY19 with the high backlog orders of CX-5, and support from the recent launch of facelift CX-3 and M6, while the short-term outlook in the Philippines remains challenging in the near term before potential recovery in FY20-21. The upcoming new M3 and CX-8 in CY19 are expected to continue sustain Bermaz sales volume in the coming year.

Forecast. Unchanged.

Maintain BUY, TP: RM2.70. We maintain BUY recommendation on Bermaz with unchanged TP of RM2.70 (upside 34.5%), based on CY20 P/E of 14x, supported by: (i) healthy balance sheet with net cash position of RM403m (34.7sen/share); (ii) sustainable sales growth, generating strong cash flow; and (iii) high dividend yield of 7.0-9.0%.

Source: Hong Leong Investment Bank Research - 13 Dec 2018