Bermaz Auto (Bauto) reported a good set of results – FY19 core net profit grew by 84% yoy to RM270m, driven by higher revenue (+25% yoy), improvement in EBITDA margin and higher contribution from 30%-owned associate, Mazda Malaysia SB (MMSB). On the whole, FY19 results were within our but above consensus full-year estimates at 102% and 108%. We maintain our earnings forecasts and roll forward our valuation base to CY20E to arrive at a higher TP of RM3.20. At 11x FY20E PER/6% yield, Bauto valuation looks attractive.

FY19 Core Net Profit Rose 84% Yoy; 10.5sen DPS for 4QFY19

Bauto’s FY19 core net profit grew 84% yoy to RM270m on (i) higher revenue growth (+25% yoy), (ii) improvement in EBITDA margin and (iii) higher contribution from associates. The strong revenue growth was driven by higher sales volume from domestic demand (+47% yoy, buoyed by strong post-tax holiday sales from the robust bookings received with the SST rebate). However, this was partly offset by lower sales volume from the Philippines (-38% yoy, impacted by higher car prices from the TRAIN law). Bauto’s EBITDA margin also expanded by 2.2ppt attributable to favourable sales mix and stronger RM (vs. Yen). Also, the associates’ earnings more than doubled to RM50m, attributable to higher production volume for the CX-5 model. Notably, Bauto has announced a fourth interim dividend of 3.5 sen (4QFY18: 2.3 sen) and a special dividend of 7 sen, bringing FY19 dividends to 21.25 sen (vs. FY18 dividends of 10.4 sen).

4QFY19 Earnings Weaker Sequentially (-26% Qoq)

As anticipated, 4QFY19 core net profit dropped by 26% qoq due to weaker revenue (-31% qoq) and a lower contribution from MMSB (-55% qoq, lower production volume for CX-5 model). The drop in revenue was due to lower sales volume from domestic operations (-35% qoq to 3.3k units, bulk of the back orders have been delivered) and Philippines operations (-37% qoq to 0.6k units on supply constraints of the Mazda 3) respectively.

Maintain BUY With a Higher TP of RM3.20

We maintain our earnings forecasts and introduce our FY22E estimates. After rolling forward our valuation base to CY20E, we have raised our TP to RM3.20 (from RM3.05) based on an unchanged 14x PER multiple. At 11x FY20E PER/6% yield, Bauto’s valuation looks attractive. Reaffirm BUY. Key risks to our call: i) lower-than-expected car sales volume, ii) supply constraint on Mazda models, and iii) forex risk.

Source: Affin Hwang Research - 13 Jun 2019