Bermaz Auto Berhad’s (BAuto) higher volumes from new marques and higher margins from price increases in Apr 23 support CGSCIMB’s add call above core net profit estimates.
CGSCIMB reiterated an Add call on BAuto with a higher TP of RM3.50 supported by higher FY24F/25F core net profit and an attractive 9% dividend yield. This was above the Bloomberg consensus upgrades which could re-rate BAuto which trades at an attractive 6.4x ex-cash core CY24F P/E, a 48% discount to its mean.
The stockbroking house forecast a sales volume of 22.7k (+6.5% yoy) in FY24F for Bermaz Auto (BAuto). This is mainly predicated on its new model launches across its three key marques – Mazda, Peugeot and Kia – in 2023F as this should allow BAuto to make further market share gains in the domestic non-national car market, which has risen steadily over the past decade to 6.7% in 5M2023, from 2.1% in 2012, CGSCIMB said in a note today (June 27).
They believe BAuto’s c.6k-strong backlog orders for Mazda, and c.400 for both Kia and Peugeot, as of end-May 2023, post the fulfilment of all of its sales and service tax (SST) exemption orders, should provide healthy earnings visibility into FY24F.
Additionally, the launch of its two locally assembled CX-30 and Kia Sorento CKD models in Mar 23 to further drive volume growth, especially the former which formed 10% of its total domestic FY23 Mazda sales despite just two production months.
Meanwhile, they also expect its Philippines operations to be on track for a recovery, recording 18% yoy volume growth in FY24F.
BAuto’s margins will widen in FY24F following price increases (on average 6%, in our estimate) from 1 Apr 23 onwards across its Mazda models except CX-5 and CX-8. CGSCIMB sees the healthy backlog orders despite price increases as an indication of BAuto’s strong pricing power and expect the increasing share of its CKD sales mix (71% of its FY23 sales volume) to provide margin upside, given that margins for CKD are typically 3-4% pts higher than for CBU.
They understand that BAuto aims to grow its CKD sales mix to above 80% of total group sales in the medium-to-long term via more locally assembled model launches. It plans to introduce its third Kia CKD model (i.e. Kia Sportage) by end-CY23F, which could further expand its higher-margin sports utility vehicle (SUV) product portfolio and improve its sales mix, in our view. Undemanding valuations with an appealing dividend yield of 9%
CGSCIMB reiterates the Add call with a higher TP of RM3.50 (12.4x CY24F P/E, its 5-year historical mean), following our 19-25% FY24-25F EPS upgrades to reflect higher sales volume and margin expansion and premised on its higher earnings base and an appealing dividend yield of 9% as BAuto continues to gain market share (more model offerings) and enjoy margin gains (via price hikes).
This was based on BAuto’s attractive valuation of 6.4x ex-cash core CY24F P/E, a 48% discount to its 5-year mean P/E and vs. CGS-CIMB’s auto sector average P/E of 11.7x, with a strong net cash position of RM438m (37 sen/share) as of 30 Apr.
Downside risks include lower-than-expected sales volume and weaker margins.
