Review

• Bermaz Auto Bhd (BAuto)’s 4QFY24 results surpassed expectations, primarily driven by increased contributions from associates. The core net profit decreased 9.1% YoY to RM91.4mn in tandem with a 12.6% drop in revenue. This decline was predominantly attributed to reduced sales volume in its domestic Mazda and Kia operations (-15.9% YoY). To recap, the high base effect in 4QFY23 was attributable to the last-minute rush by consumers to register their vehicles before the 31st March 2023 deadline, to be eligible for the sales tax exemption incentives.

• Cumulatively, FY24 core net profit rose by 15.1% YoY to RM352.0mn. Revenue increased 11.0% YoY to RM3.9bn, spurred by higher sales volume from the domestic operations, especially the Mazda CX-30 CKD model, which has continued to register stellar sales since launch in March 2023.

• FY24 sales volume increased by 11.3% YoY to 23,775 units (Malaysia: 21,192 units and Philippines: 2583 units). Notably, the combined sales volume of the CX-30 and CX5 CKD models accounted for approximately 68% of the total domestic sales volume.

• The board announced a 4th interim dividend of 4.75 sen along with a special dividend of 7.0 sen for the current quarter. This results in a total DPS of 26.0 sen, compared to 22.0 sen in FY22.

Impact

• We have adjusted FY25 and FY26 earnings upwards by 30.4% and 30.0% respectively, after incorporating FY23 results into the forecast and the revision of sales volume assumptions.

Outlook

• We have learned that BAuto's current backlog orders have decreased to approximately 1.5k units from the 2.0k units in March.

• In March, BAuto secured authorization to distribute XPeng's vehicles and spare parts in Malaysia, alongside offering after-sales services for the brand. The group looks forward to introducing its XPENG G6 EV in August, with pricing yet to be determined. This is crucial given the ongoing trend of EV price reductions in China since last year, amidst escalating competition.

• We anticipate automotive players to adopt more aggressive pricing strategies for both their existing and new products in order to safeguard their market share amidst increasing competition. Targeted fuel subsidies may drive demand for affordable EVs, potentially increasing hybrid and EV adoption in Malaysia.

Valuation

• The target price for BAuto has been raised to RM2.66 (previously RM2.33), based on a 5-year rolling average PER of 10x CY25 EPS. With a total potential upside of more than 12%, we are upgrading BAuto from Sell to BUY.

Source: TA Research - 12 Jun 2024