Review

• Bermaz Auto Bhd (BAuto)’s 2QFY24 results beat expectations. The core net profit increased 35.5% YoY to RM89.0mn on the back of a 28.6% rise in revenue. The commendable results were mainly spurred by the CX-30 CKD model, which was introduced to the domestic market in March 2023 as well as higher contribution from the Philippines operations.

• Cumulatively, 1HFY24 core net profit surged 63.3% YoY to RM189.2mn, accounting for 67% and 62% of our and consensus’ full-year estimates. The deviation was mainly due to the higher-than-expected sales volume and contribution from associates. Revenue increased 39.8% YoY to RM2.1bn and it was mainly attributable to the CX-30 CKD model and the continued fulfilment of the balance backorders for Mazda 3 in 1QFY24.

• 1HFY24 sales volume increased by 41.6% YoY to 12,832 units (Malaysia: 11,492 units, Philippines: 1,340 units). Note that the total combined sales volume of the CX-30 CKD and the Mazda 3 constitute about 41% of total sales volume for the Mazda domestic operations.

• The board has declared a higher second interim dividend of 5.0 sen (vs. 2QFY23: 3.5 sen) for the quarter under review. This will bring the YTD DPS to 10.0 sen (vs. 1HFY23: 6.5 sen)

Impact

• We tweak FY24 earnings upward by 16.3% after incorporating the higher-than-expected 2QFY24 results and revising sales volume assumptions higher by 9.3%. While for FY25, the earnings have been revised lower by 4.2% after factoring in the lower margin and earnings impact from the discontinued distributorship of PEUGEOT in Malaysia. We also introduce our FY26 earnings forecast of RM238.0mn.

Outlook

• We expect the sales volume to soften in 2HFY24 due to the absence of sales tax incentives and weak consumer sentiment. We gathered that BAuto’s current backlog orders have tapered off to around 2.5k units from 4.5k units in Sep 2023.

• Meanwhile, we do not see a significant earnings impact from the return distributorship of the Peugeot brand to its owner Stellantis NV, following Stellantis’ decision to establish its own national sales company (NSC) in Malaysia. Note that PEUGEOT contributed about 4% of the group’s total sales volume in 1HFY24.

Valuation

• We derive a new target price of RM2.33 for BAuto after the earnings adjustment. The target price is pegged on a 5-year rolling average PER of 10x. The recent sell-down has triggered some upside to share price. With the total potential upside of more than 7%, we upgrade BAuto to HOLD from Sell.

Source: TA Research - 13 Dec 2023