Kenanga Research & Investment

Bermaz Auto - Vehicles Flying Off Showrooms

Publish date: Tue, 14 Mar 2023, 09:49 AM

BAUTO’s 9MFY23 results beat expectations. Core net profit more than doubled YoY driven by robust demand for Mazda, Peugeot and Kia vehicles, and higher margins. Its third most popular model, the Mazda CX-30 CKD, was launched last week which should drive sales. We increase our FY23-24F net profit forecasts by 29-25%, lift our TP by 9% to RM2.90 (from RM2.65) and maintain our OUTPERFORM call.

9MFY23 results beat expectations, already exceeding our full-year forecast and full-year consensus estimate. The key variance against our forecast came from higher-than-expected sales volume in 3QFY23.

It declared a third interim NDPS of 4.5 sen (ex-date: 17 Apr; payment date: 18 Apr 2023) in 3QFY23 vs. 2.25 sen paid in 3QFY22 bringing 9MFY23 NDPS to 11.0 sen (9MFY22: 4.25 sen), within expectations.

YoY, 9MFY23 revenue rose 73% driven by robust demand for Mazda (+54% to 11,930 units), Peugeot (quadrupled to 1,474 units) and Kia (1,451 units) vehicles.

In terms of geographical breakdown, higher sales of 13,696 units (+70%) and 1,159 units (+34%) were recorded in both Malaysia and the Philippines, respectively, as both countries reopened their economies.

9MFY23 core net profit more than doubled due to: (i) a higher blended margin with product mix skewed towards the high-margin models, (ii) cheaper costs of imported units with the strengthening of the MYR against JPY, and (iii) a lower effective tax rate. Its associates represented largely by contract vehicle assembler Mazda Malaysia Sdn Bhd recorded profit contribution that doubled, driven by higher vehicles production as the economy reopened.

QoQ, 3QFY23 revenue rose 25% driven by Mazda (+29% to 4,803 units), Peugeot (-41% to 371 units) and Kia (+63% to 622 units) vehicles. 3QFY23 core net profit rose by a larger 33% with: (i) higher blended margin thanks to a product mix that was skewed towards the high-margin models, and (ii) a lower effective tax rate.

Forecasts. We increase our FY23-24F net profit forecasts by 29-25%, as we raised our assumptions for: (i) FY23F sales volume by 12% to 19k units from 17k units, and (ii) FY24F sales volume by 11% to 19.9k units from 17.9kunits.

We raise our TP by a lower quantum of 9% to RM2.90 (from RM2.65) as we cut our ascribed CY23F PER to 13x (from PER of 15x) to reflect the heightened competition in the sport utility vehicle (SUV) market where BAUTO has the strongest presence. At 13x, we still value it at a premium to the auto sector’s average forward PER of 11x given its niche in the premium mid-market segment and ability to consistently pay out good dividends.

We like BAUTO for: (i) its premium mid-market Mazda brand that offers the best of both worlds, i.e. products that appeal to the middle-income group and yet command superior margins than its peers in the midmarket segment, and (ii) its attractive dividend yield of about 7%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

Risks to our call include: (i) consumers cutting back on discretionary spending (particularly big-ticket items like new cars) amidst high inflation, (ii) supply chain disruptions, (iii) escalating input costs, and (iv) weakening of MYR against JPY.

Source: Kenanga Research - 14 Mar 2023

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