• 2QFY21 core net profit rose 19% yoy to RM25.3m, underpinned by higher domestic sales volume on the back of the sales tax exemption.
• Nonetheless, YTD core net profit slumped 51.5% yoy to RM35.5m, owing to a lacklustre previous 1QFY21 – below our and consensus expectations.
• We cut our forecasts by 12% for FY21, pencilling higher opex, but maintain for FY22-23E. Post revision, we maintain our HOLD rating with a higher TP of RM1.53, now based on 14x CY21E EPS.

6MFY21 core net profit down -51.5% yoy

Bermaz posted a 2QFY21 revenue of RM599.8m (+31.2% yoy), attributable to improved domestic volume on the back of the sales tax exemption over the period. Philippines operations though, saw sales decline as operations continued to be hit by the pandemic. 2QFY21 core net profit improvement of +19.1% yoy to RM25.3m was comparatively modest, weighed down by lower profit share from the group’s associates. Associate profit fell 73% yoy to RM1.8m, due to a sales decline for Mazda Malaysia Sdn Bhd (MMSB) in both its domestic and export markets amid regional lockdowns. Notwithstanding a stronger 2QFY21, YTD earnings were down -51.5% yoy to RM35.5m, owing to a lacklustre 1QFY21. We deem the results below our and consensus expectations, accounting for 34% and 31% of respective full-year forecasts. Variance to our forecast was largely on higher operational expenses.

Sales tax exemption providing support

Sequentially, revenue rose +33.6%, while core net profit more than doubled - as higher sales ensued during the RMCO aided by the onset of the sales tax exemption. While reinstatement of the CMCO for much of 3QFY20 is expected to dampen consumer sentiment, we expect the ongoing sales tax exemption should continue to provide adequate support to unit sales. The group declared a 1.25sen DPS for the quarter, bringing total 6MFY21 to 1.75sen (6MFY20: 6sen).

Maintain HOLD

With the results falling below our expectations, we lower our earnings forecast by 12% for FY21, pencilling in higher opex, but maintain our FY22-23E EPS. Meanwhile, we now peg valuations at a higher PER target of 14x (5-year mean, from 12x), reflecting: i) longer term gradual recovery off the FY20-21E low base in the lead-up to resumption to normalcy and ii) prospects on new distributorship rights for Peugeot, Citroen and DS marque. With valuation looking fair at 14x forward PER, hence we maintain our HOLD rating, with a slightly higher TP of RM1.53.

Key Risks

Key upside risk to our call: higher-than-expected car sales volume; key downside risk: (i) supply constraint on Mazda models, and (ii) forex risks.

Source: Affin Hwang Research - 11 Dec 2020