Bermaz Auto Bhd's (BAuto) announced that its 85% owned subsidiary, Bermaz Changan SB, has secured the distributorship, sale of spare parts, and after-sales services for Deepal brand electric vehicles (EVs) in Malaysia from Chongqing Changan Automobile Co. Ltd, China. This development is viewed positively, as the addition of a pure EV brand enhances BAuto's product portfolio and supports the Group's long-term growth strategy. However, we do not expect material contributions in the near term due to the gestation period required to establish the brand and generate demand for Deepal EVs. As a result, the forecast and PE-based TP of RM2.80 remain unchanged. From a valuation standpoint, the stock appears attractive after falling by 15.3% in recent months while yield remains decent at 7%. However, pending its upcoming results release on 12 December, we maintain our Neutral call at this juncture.

• Changan Automobile is a leading Chinese automotive manufacturer headquartered in Chongqing, China. It manufactures, owns and distributes several brands, including Changan, Deepal and Avatr. As one of the four major Chinese automobile groups, it operates 13 manufacturing bases and 34 vehicle and new powertrain plants worldwide. Changan Automobile is currently constructing its first overseas production facility in Rayong, Thailand under Phase 1, which consist of painting, assembly, battery assembly lines with a yearly production capacity of up to 100,000 vehicles.
• Deepal distributorship. BAuto, through its newly incorporated 85% owned subsidiary, Bermaz Changan SB, has secured the distributorship, sale of spare parts and provision of after sales services for the Deepal Brand EVs from Mobitech Co. Ltd, a wholly owned subsidiary of Chongqing Changan Automobile Co. Ltd. Deepal aims to be a world-class EV brand, offering more enticing green mobility experiences. The Deepal brand models planned for Malaysia include the S05 (compact SUV) and S07 (mid-size SUV), with a target launch in mid-2025.
• Subdued outlook. While Malaysia Automotive Association has recently revised Malaysia's Total Industry Volume (TIV) forecast to 800,000 units for 2024, a softer demand is anticipated in 2025 due to the expected rationalisation of fuel subsidy, weaker consumer sentiment and a lack of catalysts for the auto sector. Additionally, the influx of new model launches and competitive pricing may intensify market competition, further squeezing sector margins and limiting earnings growth.

Source: PublicInvest Research - 26 Nov 2024