• 3QFY21 sequential core earnings climbed 33.5% qoq to RM33.1m, backed by better margins and higher associate contribution from MMSB

• This brings Bermaz’s 9MFY21 core net profit to RM67.1m (-31.5% yoy), which was broadly in-line with our but below consensus expectations

• We make no changes to our forecasts. Maintain BUY with an unchanged TP of RM1.53, based on 14x CY21E PER

9MFY21: Within Expectations

Bermaz Auto posted a 9MFY21 revenue of RM1.6bn (+12.8% yoy), attributable to higher sales for domestic operations (+24.7% yoy) but offset by subdued Philippines sales (-49.9% yoy) which were heavily impacted by Covid-19. Notably, domestic operations benefitted handsomely from the sales tax exemption, which saw 9.8k vehicles sold YTD (9MFY20: 7.9k units). The stronger car sales were, however, negated by thinner EBITDA margins of 6.1% (-2 ppt), in part owing to a higher mix of lower-margin CBU vehicles sold domestically (27% vs 9MFY20 of 25%) as well as aggressive promotions. Meanwhile, a lower profit contribution from its 30% associate, Mazda Malaysia Sdn Bhd (MMSB) further exacerbated the core net profit contraction, which came in at RM67.1m (-31.5% yoy). This was within our expectation (73%) but below that of consensus (69%).

Better margins and associate contribution drove sequential improvement

Sequentially, revenue was marginally softer at RM598.0 (-0.3%) while core net profit registered at RM33.1m (+33.5%). Stronger profits were due to better margins from domestic operations and turnaround to profitability in MMSB, driven by higher unit sales. Looking ahead, the subsequent quarter should likely still feel the brunt of MCO 2.0 (ended 5 March 2021) which resulted in lower footfall to showrooms. Nevertheless, we believe sales volume in the near term will continue to benefit from the sales tax exemption (until 30 June 2021) whilst a gradual economic recovery in tandem with the vaccine rollout should also aid car sales prospects, especially toward the latter part of 2HCY21.

Maintain BUY

We make no changes to our earnings forecasts. Maintain our BUY rating with an unchanged TP of RM1.53, based on 14x CY21E PER – reflecting its 5-year mean. In our view, valuation looks undemanding at this juncture (11x CY21E EPS), considering the longer-term gradual recovery off the low base in FY20-21 in the lead-up to resumption to normalcy and the prospects on new distributorship rights for Peugeot. Additionally, we believe that a successful outcome of a new brand’s distribution serves as a strong catalyst, which could provide further upside risk to our forecasts. Key downside risks: i) supply constraint on Mazda models, (ii) forex risks, and (iii) prolonged lockdowns.

Source: Affin Hwang Research - 11 Mar 2021