Bermaz Auto (BAuto) reported a solid set of results – FY18 core net profit grew 28% yoy to RM147m on higher revenue contribution from the domestic and the Philippines operation as well as higher share of profit contribution from its 30%-owned associate, Mazda Malaysia (MMSB). Results were above expectations. We raise our EPS forecasts for FY19-20E EPS by 2-3%. All in, we continue to favour BAuto for its strong Mazda sales, high ROE business model and compelling valuations of 12x FY19E PER/6.1% yield.

FY18 Core Net Profit Above Expectations; 5 Sen DPS for 4Q17

BAuto’s FY18 core net profit grew by 28% yoy to RM147m on higher contribution as well as higher share of profit from MMSB. FY18 revenue expanded by 20% yoy to RM1,993m, driven by increase in sales volume from the new CX-5 and CX-9 models that were launched at end-2017. The associate’s earnings also grew by 53% yoy, attributable to higher production volume for the new CX-5 model, driven by strong demand locally and export market. Overall, the results beat market and our expectations: FY18 core net profit was 112% of consensus and 124% of our full-year forecasts. The variance against our forecasts was due to higher-than-expected share of profit from associates. Elsewhere, BAuto has announced a fourth interim dividend of 2.3 sen (4Q17: 3.15 sen) and a special dividend of 2.7 sen, bringing the full-year DPS to 10.4sen (FY17: 11.65 sen), 4.5% yield.

Sequentially, 4Q18 Core Net Profit Grew by 32%

Similarly, BAuto’s 4Q18 core net profit grew by 32% qoq to RM58.1m, driven by higher sales volume from the CX-5 model in the domestic market (+26% qoq) and higher share of profit contribution from MMSB. This was however offset by lower profit contribution from the Philippines operation (-49% qoq) as sales volume was affected by higher car prices because of the new tax reform implemented in January 2018.

Earnings Forecast Tweaks, Maintain BUY With Higher TP of RM2.71

We raise our FY19-20E EPS forecast by 2-3% after factoring in higher associate earnings, in view of stronger domestic demand, coupled with an increase in sales volume from the ASEAN export market. In tandem with our earnings revision, we have raised our 12-month price target to RM2.71 from RM2.64, based on an unchanged 16x FY19E EPS. Maintain BUY. BAuto remains our preferred pick within the auto small-mid-cap space.

Source: Affin Hwang Research - 13 Jun 2018