• Keep BUY, with new MYR2.30 TP from MYR2.65, 70% upside and 13% FY25F (Apr) yield. The influx of China marques flooding the local automotive market has resulted in tough competition. While marques under Bermaz Auto are not immune to the price war, we think its valuation is undemanding, currently trading at 6.2x, below its historical mean. Furthermore, BAUTO's above sector-average yield of 13% remains attractive.
• Weakening Mazda volume amidst fierce competition. In CY24, Mazda delivered 14.8k units in Malaysia, down 25% YoY. This decline is mainly contributed by increased competition, specifically within the non-national market segment, as Chinese carmakers gained a foothold in the local automotive scene. This is evidenced by the declining market share of Mazda to 1.8% in 2024 (vs 2.4% in 2023). The biggest disruptor, Chery managed to gain a market share of 2.4% and became the most popular non-national brand after Toyota and Honda in 2024.
• KIA is expected to make a comeback? KIA's performance in 2024 fell by a larger 45% YoY. On top of the ongoing intense market dynamics, the diesel subsidy removal which was rolled out last May also put a dent in KIA's sales performance, specifically its diesel-powered Carnival. However, it recently launched KIA Sportage in December with a competitive price tag. Ranging from MYR147-187k, we think this would be a volume-heavy model. However, considering the launch was later than we expected, we believe its impact to earnings will materially be seen in FY26F.
• Tapping into the EV market with new brands. Bermaz has also expanded its offering to venture into the EV market with its new distributorship of two Chinese brands ie Xpeng and Deepal. Xpeng, which launched last August, managed to sell 400 units of G6 in 2024, most of which were delivered in 4QCY24. Deepal, on the other hand, will make its local debut in 2HCY25 with its SUV model S07. However, given the still-niche EV market on top of the booking rate of 100 units per month by XPeng, we do not think these EV brands would contribute significantly to BAUTO's earnings.
• Keep BUY with new MYR2.30 TP. We acknowledge the risk of price sensitive buyers switching to cheaper brands but we believe BAUTO's contrarian approach of maintaining its prices will help preserve its brands' appeal in the second-hand market. All in all, we revise down our FY25F-FY27F by 11-14% as we cut our KIA volume forecasts and increase operating expense assumptions given our over-bullish estimates previously. We keep our Mazda volume assumptions unchanged as 8MFY25 volumes are in line with our FY25F. Our TP is based on an unchanged 10x CY25F P/E, and we ascribe a 4% ESG premium based on its ESG score of 3.2. Share price has tanked 42% in the last 12 months due to the fierce competition which we think is overdone. As a result, BAUTO's valuation is now very appealing while its 13% yield remains attractive.

Source: RHB Research - 22 Jan 2025