• Still BUY, with new MYR3.45 TP from MYR3.25, 58% upside and c.10% FY24F (Apr) yield. 1QFY24 core earnings of MYR100m exceeded our and Street’s expectations, mainly due to large deliveries of CBU units and strong sales in the Philippines. Despite Bermaz Auto's gradually easing order backlog, its Mazda CX-30 CKD should continue to support sales volume. We still like the stock for its attractive yield and relatively resilient car sales.

• Above expectations. 1QFY24 earnings beat our and Street’s expectations, making up 32% and 38% of full-year forecasts. The strong results beat our expectations mainly due to stronger-than-expected revenue, which is a result of higher-than-expected sales volume. Its 1QFY24 DPS of 5 sen is also above our expectations.

• Results highlights. BAUTO had an unusually strong 1Q, which was largely due to high deliveries of the Mazda 3 and CX-3 in Malaysia, as BAUTO received large shipments of both of these models from Japan and Thailand during the quarter. As total sales volume was 2% higher QoQ (mainly lifted by a 45% QoQ increase in the Philippines), revenue also inched up 2%. However, due to lower associates’ income and higher tax expense, core net profit softened by 0.4%.

• Outlook. Along with the easing order backlog of most marques in Malaysia, BAUTO's order backlog has also declined, albeit at a slower pace. Its current order backlog stands at around 4.5k units, slightly lower than the c.5k units at end-May. About half of the order backlog comes from the Mazda CX-30, as the CKD variant of the car remains popular. That said, we are expecting subsequent quarterly unit sales to be slightly softer than 1QFY24's, given the lumpy number of deliveries during the quarter. In the Philippines, we think the newly launched Mazda CX-60 and CX-90 should continue to drive BAUTO's sales volume there.

• Forecast. We lift FY24F-26F earnings by 6-8%, as we increase BAUTO's Mazda sales volume estimates in Malaysia and the Philippines. We also lift our DPS assumption to 21-23 sen from 20-22 sen, as we maintain our dividend payout ratio assumption of c.70%.

• The higher FY24F EPS lifts our TP to MYR3.45 (from MYR3.25), based on our ascribed 11.5x to FY24F EPS. The 11.5x is at +0.5SD from its 5- year mean of 11x. Our TP includes a 4% ESG premium. We maintain our BUY call on BAUTO as we think its CX-30 CKD will continue to support sales volume, given its lower price vs the CBU variant. The continued new model launches from Kia and Peugeot should also help the two marques grow their sales volume, especially from a low base. BAUTO also yields an attractive FY24F of 9.6%.

• Key downside risks include softer-than-expected orders and deliveries, and resurgent supply chain constraints.

Source: RHB Securities Research - 13 Sept 2023