Research houses are split on Bermaz Auto Bhd’s valuations over concerns of higher earnings risk for mid-market auto players on subsidy rationalisation which will hurt target customers among the middle-income group.
Kenanga Research said it is concerned over subsidy rationalisation hurting its target customers.
Correspondingly, in its Results Note, Kenanga downgrades its call to MARKET PERFORM from OUTPERFORM and cuts its TP by 29% to RM2.30 from 3.22.
This, it said is based on 10x CY24F PER, at a 1x multiple discount to the sector’s average forward PER of 11x, with no adjustment to its TP based on 3-star ESG rating.
“Bermaz’s 1HFY24 results beat expectations coming in at 69% and 62% of its full-year forecast and the full-year consensus estimate, respectively. We believe, as part of its FY25 sales and earnings could have been brought forward to FY24.
“We raise our FY24F core net profit forecast by 10% but cut our FY25F number by 7% as we bring forward part of FY25F earnings to FY24F.
“This follows a 7% upgrade in our FY24F sales volume assumption to 23.8k but a 3% reduction in our FY25F number to 22k units. As such, we now project its sales volume to jump 21% in FY24 but contract by 6% in FY25.
“We also factor in a weaker ringgit versus yen valuations,” it said today (Dec 13).
The group declared a second interim NDPS of 5 sen in 2QFY24 compared to 3.5 sen paid in 2QFY23, which is within Kenanga’s expectations.
“Year-on-year (YoY), its 1HFY24 revenue rose 40% driven by robust demand for Mazda vehicles, up by 13% to 11,257 units, and Kia vehicles, up by 147% to 1,002 units, partially offset by lower sales of Peugeot vehicles, down by 48% to 573 units, which were mostly premium models.
“In terms of geographical breakdown, higher sales of 11,492 units, up by 39% and 1,340 units, up by 66% were recorded in both Malaysia and the Philippines, respectively, on economy reopening.
“Its core net profit rose sharper by 64% due to a higher blended margin with product mix skewed towards high-margin models, cheaper costs of imported units with the strengthening of the ringgit against yen, and a lower effective tax rate.
“Quarter-on-quarter (QoQ), 2QFY24 revenue plunged 8% dragged by weaker performance across all brands, Mazda, down by 4%, Peugeot, down by 17% and Kia, down by 35%.
“Its core net profit fell slightly more at 10% due to lower margins, weaker profit contribution of 18% by its associates represented largely by contract vehicle assembler Mazda Malaysia Sdn Bhd due to lower production volume on weaker vehicles demand,” it added.
On the other hand, RHB Investment Bank Bhd (RHB IB) is relatively more positive on Bermaz’s valuation, saying that the popularity of cheaper CX30 Completely Knocked Down (CKD) model should help support Mazda sales, on top of continued model launches across the Mazda, Peugeot, and Kia marques.
Consequently, it keeps a BUY call, with new TP of RM3.60 from RM3.45, based on ascribed target P/E of 11.5x to its rolled-forward CY24F EPS, which is +1.5SD above the 5-year mean of 9x, including a 4% ESG premium.
In fact, the research house believes Bermaz’s stock is undervalued, as it is now trading at 7.6x vs its mean of 9x, while offering an attractive 11% FY24F yield.
“We tweak FY24F-26F earnings by -3% to +5% as we lift the ASP assumptions for the Malaysia segment, as well as Mazda sales volume estimates for FY24.
“However, we cut FY25F-26F sales volumes, to be conservative. We also lift our FY24F DPS assumption to 25 sen from 21 sen, assuming a payout ratio of 82%,” it added in its Malaysia’s Results Review today.
RHB IB said the group is its sector Top Pick, due to its relative resilience and handsome 11% FY24F dividend yield.
Bermaz’s core profit exceeded RHB IB and Street estimates and making up 56% and 62% of FY24 forecasts.
Notably, RHB IB said sales of the CX-30 grew 78% QoQ and it is the highest number of units sold in a quarter since the launch of the CKD model in March.
“The CX-30, alongside other CKD units, should continue to support Mazda’s sales in Malaysia. The group’s Mazda current order backlog in Malaysia, believed to be due to CX-30, stands at around 2,500 units compared 4,500 units at end September.
“Despite the backlog normalisation, orders remain resilient, with the current booking rate at 1,500 to 1,800 units per month compared to pre-pandemic levels of 1,300 to 1,400 units.
“In the Philippines, we think the newly launched Mazda CX-60 and CX-90 should continue to drive sales volumes,” it added.
