Two New Launches To Start 2023 for Bermaz Auto with Higher Forecast Earnings, Says RHB IB

Bermaz Auto just unveiled the Sorento and Landtrek yesterday as part of continuing Kia and Peugeot’s growth. RHB Research in its company update on Bermaz Auto has stated that it sees the recent sell-down as an opportunity to accumulate, as it expects robust earnings growth even beyond the delivery of Sales & Service Tax-exempt orders.

The Kia Sorento and Peugeot Landtrek add to BAUTO’s currently limited number of models for both marques. The former will be CKD and cost an estimated MYR220-255k. The latter will be CBU and cost approximately MYR123k. The addition of these two variants are part of BAUTO’s wider strategy to continue growing both brands in Malaysia with more models on the way.

More Complete-Knock-Down (CKDs) to drive Mazda’s growth. With preparation for local assembly of the Mazda CX-30 already underway, the research house believes sales of the first units of the CKD CX-30 could be recognised in February – March 2023.

With prices estimated at MYR10k lower for the CKD CX-30 vs the completely built-up (CBU) variant and greater certainty in production volumes, this local assembly should help drive volume growth. With the successful CKD operations of the CX-5 and CX-8 so far, the research house does not discount the possibility of more Mazda CKDs ahead.

Growing EV options, but demand remains lukewarm. In 1QCY23, BAUTO will add the Peugeot e-2008 into its existing EV line-up, which currently comprises Mazda and Kia’s MX-30 and EV6. While RHB Research holds the opinion that the brands’ EV offerings exemplify their electrification ambitions, consumers here are still only slowly warming up to EVs. There is no waiting time for the MX-30 currently and a short waiting period for certain colours of the EV6.

It is believed the lukewarm response is likely due to EVs’ high prices; lack of charging infrastructure; long charging times. Hence, the research house predicts that BAUTO’s EV sales contributions to likely remain at <5% for the foreseeable future from the YTD of 0.6% of total unit sales.

Minimal JPY/MYR impact. The JPY/MYR’s recent rise has prompted some concerns, as BAUTO has gains/losses from a weakening/strengthening of the JPY/MYR via 30% associate Mazda Malaysia, which incurs some costs in JPY. BAUTO also incurs JPY costs from importing Mazda CBUs – 18% in 1HFY23 (Apr). The research house believes this is set to decline with growing CKD contributions. It estimates that a 5% strengthening of the JPY/MYR will cut earnings by MYR0.8m, ie <0.4% of FY23F and FY24F earnings.

Accordingly, RHB Research has lifted its forecast earnings for financial year 2024-2025 (FY24F-FY25F) by 14-13% as it raises its sales volume assumptions – with Mazda’s being boosted by higher CKD contributions while Kia’s is driven by its new models, especially the upcoming Sportage.

The research house has reiterated its BUY recommendation on this counter with a higher target price (TP) of MYR2.90, based on an elevated FY24F earnings using an unchanged 13x P/E. Its TP includes a 4% ESG premium.

The BUY recommendation is based on its 7.3% FY24F yield, and growth of its Peugeot and Kia brands.

Key downside risks include a strengthening JPY/MYR rate, poorer-than-expected car sales, and worse-than-expected component shortages.

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