• Keep BUY, new MYR3.35 TP from MYR3.60, 35% upside. 9MFY24 (Apr) earnings largely met our and Street’s full-year estimates at 73% and 77%. We continue to favour Bermaz Auto, which is our sector Top Pick, due to its relatively resilient car sales – supported by consistent new model launches – while its 9% FY25F yield is the cherry on top.

• In line. 3QFY24 net profit of MYR70.6m brought the 9MFY24 figure to MYR260.8m, making up 73% and 77% of our and Street’s full-year estimates – largely in line with expectations. BAUTO declared its third interim DPS of 4.25 sen, bringing YTD DPS to 14.25 sen. Given the potential of another record-high earnings, we believe a special dividend is likely. Hence, we maintain our FY24F DPS assumption of 25 sen, which translates to a FY24F core payout ratio of 85% and 10% yield.

• Results highlights. 3QFY24 revenue fell 11% QoQ, as sales volumes seasonally declined by 12% QoQ. Due to the less favourable sales mix, operating profit fell by a further 19% QoQ. As a result, core net profit slipped 21% QoQ, bringing 9MFY24 earnings to MYR260.8m (+28% YoY). While sales volumes in Malaysia were affected by seasonal factors, BAUTO’s Philippines performance remained relatively robust – with a 2% QoQ rise in revenue – while volumes only slipped 0.7% QoQ. The latter was mainly supported by demand for the CX-60, which has more than tripled QoQ.

• Outlook. BAUTO’s prospects remain exciting, as it is on track to achieve another year of record-high earnings. Though backlog has returned to pre- pandemic levels, ie 2,000 units, Mazda volumes should remain resilient in the coming quarters. This is supported by the recently launched new CX-3 and CX-5 models in January. Additionally, its CX-30 CKD remains popular, which makes up 40% of 3QFY24 volumes. In the Philippines, we think the newly launched Mazda CX-60 and CX-90 should continue to drive sales volumes.

• We trim down our FY24F-26F earnings by 3-9% as we cut volume and associate contribution assumptions, as well as interest expense and income, to better reflect the 9MFY24 performance.

• BUY, new MYR3.35 TP, based on an unchanged 11.5x CY24F P/E and 4% ESG premium. The stock is currently trading at an attractive 8.9x CY24F EPS, below its 5-year historical average P/E of 10x. BAUTO remains our sector Top Pick due to resilient car sales – supported by consistent model launches – and 9% FY25F yield.

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

Source: RHB Research - 14 Mar 2024