9MFY21 PATAMI of RM67.1m (-32%) came in below expectations at 55%/69% of our/consensus full-year estimate due to unexpected implementation of MCO 2.0 in January 2021 which affected the showroom and vehicles production activities in the country. Looking forward, the ending of the free 6-year warranty and 6-year maintenance promotions could affect its near-term sales while new launches are expected only by year-end. As such, we cut FY21E and FY22E CNP by 27% and 25%, respectively. Downgrade to MP (from OP) with a lower TP of RM1.30 (from RM1.70).

9MFY21 below expectations. 9MFY21 PATAMI of RM67.1m (-32%) came in below expectations at 55%/69% of our/consensus full-year estimate due to unexpected implementation of MCO 2.0 in January 2021 which affected the showroom and vehicles production activities within the country. The ending of free 6-year warranty and 6-year free maintenance promotions could affect its near-term sales. A 3rd interim DPS of 1.5 sen (3QFY20: 1.45 sen) was declared, bringing YTD-DPS to 3.25 sen (9MFY20: 7.45 sen), as expected.

QoQ, 3QFY21 PATAMI surged 33%, outpacing the flat sales growth (+0%) mainly due to: (i) expanding EBIT margin by 0.3ppt to 6.0%, from 5.7% in 2QFY21 in line with the increased sales in November and December, and lower inventory holding costs, (ii) stronger associates (+320%) with the stronger earnings contribution from both Mazda Malaysia SB (MMSB) which turned profitable at RM16.9m from loss of RM2.4m in 2QFY21 and Inokom Corporation (+25%), and (iii) lower effective tax rate of 22.8% (2QFY21: 27.6%). The flat sales were caused mostly by sluggish showroom activity from MCO 2.0, and shortage of components and parts during the temporary closure of automotive factories in the 1st week of MCO 2.0 that began on 13th January. Malaysia recorded 3QFY21 sales unit of 3,596 units (+2%) and Philippines at 352 units (+25%).

YoY, 9MFY21 PATAMI plunged 32%, despite higher sales (+13%) largely due to: (i) contraction in EBIT margin by 2.0ppt to 5.3% from 7.3% in 9MFY20 due to aggressive promotional campaigns for the local market, (ii) share of loss contribution from one of its associate companies, Mazda Malaysia SB (-RM5.5m) due to significant drop in unit sales with minimal orders from both the domestic and export markets during the MCO and CMCO periods, partly offset by stronger Inokom Corp (RM21.8m), and (iii) higher effective tax rate of 26.4% (9MFY20: 21.1%). Overall, Mazda’s 9MFY21 sales were at 10,590 units (+8% YoY).

Exciting new launches ahead. BAUTO’s previous launches of the Mazda marque were more than a year ago: 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). New Mazda launches, but due only for later this year, are the face-lifted CX-30 CKD (CY2021), and allnew Mazda MX-30 (CY2021). For the quarter, BAUTO added 19 new additions of PEUGEOT Dealer Centres with best-seller 3008 and 5008 SUV Allure Plus (CKD) which turned in a small profit of RM162k.

We cut FY21E and FY22E CNP by 27% and 25%, respectively, to reflect lower sales and ending of promotions.

Downgrade to MP (from OP) with a lower TP of RM1.30 (from RM1.70) based on unchanged 13x CY21E EPS (at 5-year Fwd. historical mean PER). Risks to our call include l car sales volume, and forex.falling outside the range of our expectations.

Source: Kenanga Research - 11 Mar 2021