FY20 PATAMI of RM100.5m (-62%) came in below our/consensus expectation at 74%/87% of estimate due to lower-than-expected sales. As such, we cut our FY21E CNP by 33%. Despite the recent announcement of SST exemption for passenger vehicles, the quantum of vehicles prices reduction, i.e. CX-5 by average 3-4%, in our view, is unexciting, especially during this economic uncertainties which is exacerbated by stringent hire-purchase approvals. Downgrade to UP from MP, with a lower TP of RM1.30 (from RM1.40) based on 10x CY21 EPS.

FY20 below expectations. FY20 PATAMI of RM100.5m (-62%) came in below our/consensus expectation at 74%/87% of estimate due to lowerthan-expected sales. No dividend was declared for the quarter, below our expectation of 11.6 sen, leaving YTD DPS at 7.5 sen (FY19: 21.3 sen).

YoY, FY20 PATAMI plunged 62%, despite sales decreasing at a lower rate of 30%, largely due to: (i) contraction in EBIT margin by 5.1ppt to 6.1% from 11.2% in FY19 following the outgoing Mazda CX-5 run-out promotion to clear inventories before the all-new launch in 22nd Oct 2019, (ii) lower associates (-47%), and (iii) the strengthening of the Japanese Yen against the Malaysian Ringgit and Philippine Peso which offset gross profit margin. Overall, the weaker results stemmed from: (i) weaker Mazda sales at 11,711 units (-38%) after back-orders were filled from the zero-rated tax discount period in FY19 and further affected by the MCO in 4QFY20, (ii) weaker associates’ contribution on lower production volume, and (iii) delayed order delivery for the all-new CX-5 and all-new CX-8 due to pricing approval issues.

QoQ, 4QFY20 PATAMI drove down the hill (-91%) corresponding with the plunge in sales (-36%), from the mandatory closure of businesses by governments world-wide to curb the outbreak of the COVID-19 pandemic. Overall, weaker Mazda sales were chalked at 1,903 units (- 35% QoQ, -52% YoY). The Malaysian MCO was from 18th March 2020 until 12th May 2020, while the Philippines Enhanced Community Quarantine (MCQ) was from 17th March 2020 until 15th May 2020. This was further affected by the: (i) contraction in EBIT margin by 5.1ppt to 0.7% from 5.8% in 3QFY20, (ii) lower associates (-67%), and (iii) higher effective tax rate at 35.7% (3QFY20: 17.4%).

New launches. BAUTO had earlier launched the all-new Mazda 3 Sedan and Hatchback (CBU, July 2019), face-lifted and turbo variants of CX-5 (CKD, 22nd Oct 2019), all-new CX-8 (CKD, 13th November 2019), all-new CX-30 (CBU, 15th January 2020), 2020 Mazda CX-9, face-lifted Mazda 2 and 2020 Mazda MX-5 RF (3rd March 2020). BAUTO will also introduce the face-lifted CX-3 (CY2020), and all-new Mazda MX-30 (CY2021).

Cut FY21E CNP by 33% on expectation of lower sales from cautious consumer spending on big-ticket discretionary items.

Downgrade to UP from MP with a lower TP of RM1.30 (from RM1.40).
Despite the recent announcement of SST exemption for CKD (100%) and CBU (50%) until 31st Dec, the quantum of vehicles prices reduction, i.e. CX-5 by average 3-4%, in our view, is unexciting, especially during this economic uncertainties which is exacerbated by stringent hirepurchase approvals. Downgrade to UP from MP, with a lower TP of RM1.30 (from RM1.40) based on 10x CY21 EPS (from 10x CY20 EPS, - 1.0SD from 5-year Fwd. historical mean PER).

Risks to our call include: (i) higher-than-expected car sales volume, and (ii) favourable forex.

Source: Kenanga Research - 12 Jun 2020