Kenanga Research & Investment

Bermaz Auto Bhd - 1HFY22 Within Our Expectation

Publish date: Tue, 14 Dec 2021, 08:56 AM

Although 1HFY22 PATAMI of RM36.3m (+7%) came in at 31%/28% of our/consensus full-year estimates, we deemed the results to be within our expectation. This is because we expect stronger sales in upcoming quarters on the full reopening of the automotive sector with stream of new launches ahead including the highly anticipated EV variant of MX-30 in 3Q/4Q CY22. Upgrade to OP from MP with unchanged TP of RM1.65. The stock also offers a dividend yield of 4%.

1HFY22 within our expectation. 1HFY22 PATAMI of RM36.3m (+7%) came in at 31%/28%. Still, we deemed the results as within our expectation as we expect stronger sales in the upcoming quarters on the full reopening of the automotive sector with stream of new launches ahead including the most anticipated EV variant of MX-30 in 3Q/4Q FY22. A 2nd interim DPS of 1.5 sen was declared, bringing 1HFY22 DPS to 2.0 sen (1HFY21: 1.75 sen), as expected.

YoY, 1HFY22 PATAMI rose 7%, despite drag in sales (-23%) largely due to: (i) expansion in EBIT margin by 1.0ppt to 6.0% from 5.0% in 1HFY21 from a string of cost saving efforts including reversal of over-accrued provision (volume commitment fee), the ending of aggressive promotion (i.e. in-house warranty extension), and lower A&P costs with the extension of SST exemption, as well as (ii) lower finance costs and lower effective tax expense at 26.6% (1HFY21:29.6%). This was also supported by the improved contribution from associates (profit of RM3.8m compared to a loss of RM0.2m) with: (i) MMSB reporting lower loss of RM5.4m compared to a loss of RM22.4m, (ii) Inokom at RM9.6m (+39%), and (iii) BAASB with a loss of RM1.7m (n.a.) with minimal orders from both the domestic and export markets during the MCO and CMCO periods. The lower sales was due to the full lockdown in Phase 1 from 1st June 2021 until 15th August 2021 with Mazda’s 1HFY22 sales at 3,047 units (-20% YoY).

QoQ, 2QFY22 PATAMI surged 154%, outpacing the strong sales growth (+51%) from re-opening of the automotive sector post-lockdown mainly due to: (i) expanding EBIT margin by 1.4ppt to 6.5%, from 5.1% in 1QFY22, and (ii) lower effective tax rate at 25.7% (1QFY22: 28.6%) due to certain expenses or losses being disallowed for tax purposes, different foreign tax rates and the inclusion of the share of results of associates presented net of tax in the previous quarter. Overall, Mazda’s 2QFY22 sales were stronger at 3,047 units (+58%) on better post-lockdown demand.

Exciting new launches ahead. Mazda’s current line-ups are the Mazda 3 (CBU, July 2019), CX-5 (CKD, 22nd Oct 2019), CX-8 (CKD, 13th November 2019), CX-30 (CBU, 15th January 2020), CX-9, Mazda 2 and MX-5 RF (3rd March 2020). New Mazda launches are the all-new CX-3 IPM version (CBU, July/Aug 2021), CX-30 IPM version (CY22), CX-8 IPM version (May-2022) and all-new Mazda MX-30 EV (3Q/4Q4 2022). PEUGEOT’s current line-ups are the 3008 and 5008 SUVs, while upcoming models are 2008 SUV (Jan 2022), 3008/5008 IPM version (July 2022), all new e-2008 EV CBU (4Q 2022), and 508 Electric Hybrid (in discussion). KIA’s upcoming line-ups are the all-new Kia Carnival (CKD, Apr 2022), Sportage PHEV (3Q/4Q 2022, CKD 2023), EV6/PBV1 EV (3Q/4Q 2022), and all new Niro/Seltos (4Q 2022).

Upgrade to OUTPERFORM (from MARKET PERFORM) with unchanged TP of RM1.65 based on unchanged 15x CY22E EPS (at 5- year Fwd. historical mean PER) with the recent weakness in share price offering buying opportunity on the stream of new launches ahead to drive the sales growth.

Risks to our call include: lower car sales volume, and forex falling outside the range of our expectations.

Source: Kenanga Research - 14 Dec 2021

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