BAUTO announced that it will cease Peugeot distributorship following the plan of principal Stellantis N.V. (Stellantis) to directly manage its own brands in Malaysia. However, BAUTO will remain the super dealer for Peugeot vehicles. We estimate that the impact on BAUTO’s earnings is negligible at <2%. We maintain our forecasts, TP of RM3.22 and OUTPERFORM call.

Distributorship to Super Dealer. BAUTO announced that it will cease Peugeot distributorship under 55%-owned Bermaz Auto Alliance (BAA), following the plan of Stellantis to set up its own national sales company in Malaysia within 1QCY24. BAUTO’s Peugeot distributorship agreement will expire by end-Nov 2023 and thereafter it will be given a 6-month grace period to hand over the business. Nonetheless, BAUTO will remain the super dealer for Peugeot vehicles under Bermaz Anshin Sdn Bhd.

Stellantis N.V new national sales company will manage the sales and distribution of Stellantis vehicles in Malaysia. It will introduce more Stellantis brands including Citroën, Ram, Maserati, Alfa Romeo and Jeep. In line with its goal to achieve the bold ambitions of its Dare Forward 2030 strategy, Stellantis is investing over RM2b (€400m) to introduce the STLA Medium platform (BEVs battery system platform). Stellantis is evaluating the potential of its Gurun plant as a regional manufacturing hub to manufacture BEVs for both domestic and export markets in Asean. The plant currently produces key Peugeot models including 2008, 3008 and 5008 which are distributed to markets in the region including Malaysia, the Philippines, Thailand and Cambodia.

Impact on earnings. We estimate that the earnings impact of the latest development is negligible at <2%. In FY23, Bermaz Auto Alliance (BAA) sold 2,194 units of Peugeot vehicles and recorded a net profit of RM6.7m or RM3.7m based on BAUTO’s 55% share of profit. It incurred RM2m capex for a Peugeot 3S centre at Glenmarie.

Forecasts. Maintained.

We also maintain our target price of RM3.22 based on CY24F PER of 13x, 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. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Outlook. BAUTO guided for at least 24k units sales in FY24 driven by all-new models launching (see page 2) especially boosted by the refreshed CKD model of CX-30. At present, its order backlogs stand at 5k units for Mazda and a few hundred units each for Kia and Peugeot.

We like BAUTO for: (i) its strong earnings visibility backed by an order backlog of 5.5k units for Mazda, Kia and Peugeot vehicles, (ii) 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 mid-market segment, and (iii) its attractive dividend yield of about 9%. 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) MYR weakens against JPY.

Source: Kenanga Research - 23 Nov 2023