This article first appeared in The Edge Malaysia Weekly on August 7, 2017 - August 13, 2017

Uncertainty over a new vehicle excise tax proposal in the Philippines has prompted Bermaz Auto Bhd (BAuto) to rethink its plan to launch the initial public offering (IPO) of Bermaz Auto Philippines Inc (BAP).

BAuto had planned to spin off its 60.4%-owned Philippine unit, which distributes Mazda completely built-up vehicles in the country, on the Main Board of the Philippine Stock Exchange in the first half of this year.

However, BAuto executive director Datuk Francis Lee Kok Chuan says the much-awaited IPO for BAP will be put off to the second half of its financial year ending April 30, 2018 (2HFY2018). This would mean between November this year and April next year.

“Our Philippines IPO has been deferred as the company needs to address certain additional information required by the authorities, which includes the impact of the new excise duty on car sales in the Philippines,” he tells The Edge in an interview.

Lee, 58, was appointed to the board of BAuto in July 2011. He was the CEO of Berjaya Food Bhd until his resignation on June 1 this year, citing work commitments at BAuto.

To recap, BAuto had in September last year proposed the listing of BAP, which sold 15,352 Mazda vehicles in the Philippines between FY2013 and FY2017. It is learnt that most of the Mazda vehicles sold in the archipelagic state are imported from Japan and Thailand.

Philippine media ABS-CBN last Wednesday reported that local automotive manufacturers estimated car demand in the country will decline 10% to 20% if excise tax on cars is raised.

Limiting the car industry’s growth could also affect jobs and other support services, Chamber of Automotive Manufacturers of the Philippines president Rommel Gutierrez told lawmakers, as the Senate deliberated on the government’s tax reform programme.

“The new excise duty is expected to be introduced early next year. Hence, we decided to defer [our IPO] and refile the application once the tax issue becomes clearer in the coming months,” says Lee.

“We will look at it again next year, as we have announced the deferment of our IPO in June,” he says, adding that an announcement will be made at the appropriate time.

Lee also cautions that the impending increase in excise tax on cars in Philippines may affect BAP’s vehicle sales projection for FY2018.

“As such, we would rather not do it (IPO) now. It is better to wait until the tax becomes more certain,” he says.

Philippine President Rodrigo Duterte’s economic managers are seeking higher taxes on cars, fuel and sugar-sweetened beverages to make up for a planned reduction in income tax rates.

The tax reform seeks to shift the burden to the ultra-rich from the middle class and raise money for Duterte’s PHP8 trillion infrastructure programme.

BAP registered a three-year vehicle sales compound annual growth rate of 92% between FY2013 and FY2016, from 657 units to 4,684 units. Vehicle sales in the Philippines, however, saw a 11% year-on-year decline to 4,167 units in FY2017.

Mazda 2 and Mazda 3 are BAP’s bestselling models, followed by the CX-5 and BT-50. Other models, such as the CX-3, MX-5 sports car and Mazda 6, are also selling well there.

In an interview with The Edge Financial Daily last November, Lee pointed out that BAP would be the first and only pure automotive company to be listed on the Philippine bourse.

He said of the proceeds, BAP intends to use RM9 million to RM10 million to set up 12 to 15 satellite outlets (2S centres) in the Philippines within the next two to three years.

Lee also revealed that BAP was planning to set up a warehouse and distribution centre in the Philippines, which will also provide after-sales service training. Excluding the land cost, the whole complex is estimated to cost RM8 million to RM10 million.

Closer to home, BAuto is the distributor of Mazda vehicles and spare parts in Malaysia. The group also owns a 29% stake in associate company Inokom Corp Sdn Bhd, a contract manufacturer for various marques, including Mazda, at its plant in Kulim, Kedah.

BAuto changed its name from Berjaya Auto Bhd after a management buyout last year, as it is no longer a major subsidiary of Berjaya Corp Bhd.

Moving forward, BAuto is planning to launch the new CX-5 in completely knocked-down form in the last quarter of this year.

In April, the G-Vectoring Control (GVC) system was introduced across Mazda’s entire model range, including the CX-3, Mazda 6 and Mazda 3.

“In the future, all Mazda cars will come with GVC. We want to remain as a premium Japanese car company offering vehicles at affordable prices. So, people who buy from us will know they are buying Mazda cars with the latest advanced features you see in the very expensive European cars,” Lee says. 
 

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