Bermaz Auto Bhd's (BAuto) 2QFY25 net profit halved YoY to RM41.0m, primarily due to a decline in sales volume from both its Malaysian and Philippine operations. Cumulative 1HFY25 net profit of RM110.6m (-41.9% YoY) was below both our and consensus expectations, accounting for 38.9% and 37.1% of full-year estimates, respectively. The discrepancy in our estimates was mainly attributable to lower sales volume from its Mazda and Kia marque domestic operations, arising from the increasingly competitive environment driven by an influx of Chinese-made vehicles in the market. We revised our FY25-27F earnings downward by an average of 14%, as we lower our sales assumption in light of the intense competition. As a results, our PE-based TP revised to RM2.37 (RM2.80 previously). We maintain our Neutral rating on BAuto. A second interim dividend of 3.0 sen per share was declared for the quarter, translating to a payout ratio of 87.3% (2QFY24: 5.0 sen at 64.7% payout ratio)

• Revenue for 2QFY25 declined by 35.8% YoY to RM646.9m, mainly due to lower sales volume amid heightened competition while the anticipated launching of new and facelift models resulted in consumers holding back purchases. During the quarter, total unit sales fell by 38.3% YoY to 3,815 units, driven by lower vehicle sales from both the Malaysia and Philippine operations. Vehicle sales in the Malaysian decreased by 42.6% YoY to 3,198 units, while sales in the Philippines declined by 24.4% YoY to 461 units.
• Net profit for 2QFY25 decreased by 55.2% YoY to RM40.3m, in line with the decline in overall sales volume. This was further compounded by lower margin from its Kia operations, higher finance cost, and expenses related to the Group's ESOS. The decline was exacerbated by lower contributions from its associated companies and the Philippine operation due to changes in sales mix.
• Subdued outlook. While Malaysia's Total Industry Volume (TIV) is on track to meet Malaysia Automotive Association's recently revised forecast of 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 Chinese-made vehicles may intensify market competition, further squeezing sector margins and limiting earnings growth.

Source: PublicInvest Research - 13 Dec 2024