• Stay BUY, new MYR2.30 TP from MYR2.00, 35% upside with c.6% FY23F (Apr) yield. Recently, Bermaz Auto launched two new EVs – the Kia EV6 and Mazda MX-30 – and an upgraded version of the Mazda CX-8. While EVs will still make up a small portion of total units sold, they mark an exciting first step in BAUTO’s EV journey. As the Sales and Service Tax (SST) exemption is over, we gather that its backlogged orders are very strong, and should lift FY23F earnings on the surge in orders.

• Unveiling the Kia EV6... The only variant, GT-line AWD, is priced at c.MYR298k, which is more expensive than the Hyundai IONIQ5’s highest price of MYR270k. The Kia EV6 will be a CBU model imported from South Korea. This model will likely account for a small portion of BAUTO’s total Kia sales, due to the gradual pace of EV adoption and the marque’s limited EV production capacity.

• … and the Mazda MX-30 EV. There are two CBU variants shipped from Japan – the MX-30 EV Mid and MX-30 EV High. While the price of the former is unknown, the latter will start at c.MYR199k. Like the EV6, we expect the MX-30 EV to contribute to total sales units in small volumes.

• Record orders. While The Edge, in a 29 Jun article, reported that BAUTO had almost 9k outstanding orders for Mazda vehicles, we would not be surprised if strong orders on the last day of the SST exemption brought this number to over 10k. The company saw very strong orders on 31 May, as it had offered to absorb customers’ SST for orders placed before end-May. With such an order backlog, we suspect that it could take BAUTO seven months or more to fulfil most orders. We gleaned that, lately, it has been getting insufficient CKD kits from its principal in Japan, as the impact from China’s lockdown starts to flow through. That said, the company is still fairly confident that it can fulfil most CKD backlog orders before 31 Mar 2023.

• Forecast changes. We lift FY23-25F ASPs due to higher car prices, and FY23F Mazda sales volumes to account for its current strong backlog orders. However, we also trim FY24-25F units sold to account for the dampened demand – as a result of higher car prices and cost of living. After accounting for the above, and new JPY100/MYR forecasts, we lift FY23- 24F earnings by 11% and 3%, but trim FY25F net profit by 1%.

• Still a BUY. As we increased our projections, our TP rises correspondingly to MYR2.30. Our TP is based on an unchanged 13x FY23F P/E, and includes a 2% ESG premium for its above-median ESG score of 3.1. Our ascribed 13x P/E is slightly below BAUTO’s 5-year historical average of 13.3x P/E – the slight discount is to account for concerns of a slowdown in orders, amidst the lack of SST-exemption and higher living costs. Currently, the stock is trading at 10x FY23F EPS – below -1SD from its 5-year historical average P/E, which we think undervalues the stock. Key downside risks include a strengthening JPY/MYR, softer-than-expected demand post SST exemption, and worse-than-expected component shortages.

Source: RHB Research - 4 Jul 2022