Bermaz Auto Buoyed By Kia Distributorship, Mazda Philippines Sales

Growth in Bermaz Auto Berhad’s (BAuto) Kia distributorship (acquired in 2021) and Mazda sales in the Philippines supports the concessionaire’s  FY25-26F core net profit (CNP), which is expect to be 67.0% higher than FY17-19 levels, on average.

CGS International (CGS) believes 2024F total industry volumes (TIV) in Malaysia will reflect the bringing forward of 2025-26F demand, which prompted the stockbroking house to lift by 5.4% their FY4/24F CNP estimate while reducing their FY4/25-26F CNP estimates by 12.9-17.7%.

CGS, in its Company Note today (May 15), said they believe cash handouts, EPF Account 3, and rising number of fresh graduates and civil servant salaries will be supportive of consumer spending in Malaysia and estimate TIVs will normalise at 650k p.a. levels for 2025-2026F.

Market underestimating BAuto’s sustainable ROEs

BAuto’s underperformance vs. the KLCI YTD (+2.6% vs. the KLCI’s 10.4%) has left it at a FY25F P/BV of 3.44x, which implies FY25F ROE of 27.5% (7.4% pts below CGS’s estimate) or FY25F CNP of RM222m, 22.3%/27.3% below their and Bloomberg consensus forecasts. By CGS estimates, this suggests a 40% decline in Mazda Malaysia’s unit sales, all else being equal (i.e. CGS estimates for Kia Malaysia and Mazda Philippines remain unchanged), which CGS thinks is unrealistic given the healthy economy and the positive factors for consumer spending outlined above.

Additionally, at current prices, BAuto offers an attractive 9% dividend yield (assuming c.85% payout ratio), which CGS believes the market will rerate towards 7% when it accepts that ROEs in FY25/26F are likely to stay at 35%.

CGS Reiterates Add with a lower TP of RM3.10

CGS reiterated their Add recommendation on BAuto as they see (1) continued demand for new vehicles in Malaysia, albeit below 2023-24 peaks, (2) Kia brand gaining market share in Malaysia, and (3) greater contribution from Mazda sales in Philippines.

Key rerating catalysts includes; (1) growth of Kia brand in Malaysia and Mazda brand in Philippines, and (2) robust Malaysian consumer discretionary spending supporting TIVs.

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