• Maintain BUY with higher MYR2.55 TP from MYR2.35, 28% upside and 7.5% yield. Bermaz Auto’s 1HFY23 (Apr) earnings exceeded our estimates, contributed by a favourable sales mix and a large associate contribution, which partially benefited from a weakening JPY/MYR. With new models lined-up across all three marques in 2023, BAUTO’s growth prospects remain exciting.

• Above expectations. 2QFY23 core earnings of MYR65.7m brought 1HFY23 earnings to MYR116m, above our and Street’s expectations at 58% and 62%, respectively. As revenue was in-line, the deviation from our estimates was mainly due to the higher-than-expected margins, contributed by favourable sales mix and partially from its associates benefiting from a weaker JPY/MYR. 2QFY23 DPS of 3.5 sen brought 1HFY23 DPS to 6.5 sen, within our FY23 estimate of 13 sen.

• Results review. 2QFY23 revenue rose 9%, mainly lifted 12% QoQ by an increase in Malaysian unit sales. Due to favourable sales mix, its operating margins rose 16% QoQ. Further supported by greater associate contribution and lower effective tax rate, core net profit rose 31% QoQ. Notably, sales of CKD Kia Carnival grew 79% as production continues to be ramped up. Kia EV6 continues to gain traction, with corporate buyers buying for their EV fleets. While BAUTO has launched the MX-30 (its first Mazda EV) in June 2022, it has yet to register any sales, as shipments are only arriving in 3QFY23.

• Outlook. Currently BAUTO’s order backlog remains healthy, with more than half of existing Mazda orders made after 1 Jul 2022 (when purchases were no longer sales tax-exempt). All three marques will also see new models in 2023. The CKD variant of the Mazda CX-30 will be launched in 1QCY23. Currently, CBU CX-30 contributes anywhere from 4% to 21% of total unit sales. With the CKD variant, we think CX-30 could see greater and more steady volumes. 1QCY23 will also see two new models from Peugeot being launched – the new Landtrek and e-2008, BAUTO’s first Peugeot EV. Under the Kia brand, there will also the launch of the all-new Sorento in 1QCY23 and all-new Sportage in 4QCY23.

• We increase our FY23F by 10%, as we increase our FY22 Peugeot sales assumption and adjust our margin assumption to reflect the favourable YTD sales mix. We maintain our FY23F-FY25F DPS of 13-16 sen, conservatively assuming a payout ratio of <80% (pre-pandemic >80%, suggesting more upside to our estimates).

• Maintain BUY, with a higher TP of MYR2.55 (from MYR2.35) as we roll forward our valuation to FY24F using an unchanged 13x P/E. Our TP includes a 4% ESG premium. We continue to like BAUTO for its 7.5% FY24F yield, and the growth of its Peugeot and Kia brands. Key downside risks include a strengthening JPY/MYR rate, poorer-than-expected car sales, and worse-than-expected component shortages.

Source: RHB Research - 9 Dec 2022