KUALA LUMPUR: Mazda Malaysia Sdn Bhd, a 30%-owned associate of Bermaz Auto Bhd, is eyeing a larger slice of the pie in the Asean markets, as the automotive firm targets to export the locally assembled CX-5 to Cambodia, Indonesia and Myanmar in the second half of this year.
“Mazda Japan is very bullish on Asean, and they want to support us (Mazda Malaysia) to make Malaysia an exporting hub,” said Bermaz Auto executive director Datuk Francis Lee Kok Chuan when met in Singapore late last month. Mazda Malaysia, the local assembler of Mazda vehicles in Malaysia, is a 30:70 joint venture between Bermaz Auto and Japanese car giant Mazda Motor Corp (Mazda Japan).
“And next year, Mazda Malaysia hopes to export to one of the countries in the Middle East. We are working with the Malaysian government and are hoping to form some FTAs (free trade agreements) at the G2G (government-to-government) level. Otherwise, it will not be feasible with all the duties involved,” he said.
Currently, Lee said 50% of Mazda Malaysia’s sales come from the export market. He expects the portion to expand in future.
More recently, back in Kuala Lumpur, he told The Edge Financial Daily that Mazda Malaysia had invested over US$20 million in a new paint shop at Inokom Corp Sdn Bhd’s plant in Kulim, Kedah, last year, so that they can produce the latest Mazda vehicle colours, “and more importantly, to cater for the Asean export markets”. However, he declined to reveal any export target numbers.
Besides Mazda vehicles, Bermaz Auto also distributes the brand’s spare parts in Malaysia and the Philippines. The group has a 29% stake in Inokom, the contract manufacturer of various marques, including Mazda vehicles. Other shareholders of the consortium are Sime Darby Motors Sdn Bhd (51%), Hyundai Motor Co of South Korea (15%) and Sime Darby Hyundai Sdn Bhd (5%).
Lee said after the new paint shop is installed, production capacity at the Inokom plant will be increased from 18,000 units to 35,000 units over two shifts. This, he said, should augur well for both Mazda Malaysia and Inokom Corp, which ultimately also benefits Bermaz Auto.
“With this increase in volume, Mazda Malaysia will try to export as many Mazda vehicles as possible, by making Malaysia the Asean exporting hub,” said Lee.
He also said the export sales figures will not be reflected in Bermaz Auto’s total vehicle sales, as Mazda Malaysia will be the one that exports Mazda vehicles to other Asean markets through its own distributors in their respective countries.
“The exports have nothing [directly] to do with us (Bermaz Auto). Mazda Malaysia will export [the cars] to their own national sales office in Thailand, as well as their distributors in Indonesia, Cambodia and Myanmar. These are the major export markets that they are looking at,” Lee clarified.
“Of course, there will be earnings contributions to Bermaz Auto, because we also own [a] 30% stake in Mazda Malaysia,” he said.
Vietnam is not included in Mazda Malaysia’s export plan as Mazda Japan operates a manufacturing plant there, said Lee. The Japanese automaker also owns a plant in Thailand.
Bermaz Auto’s car sales are mainly driven by the Mazda 2 completely built-up (CBU) model imported from Thailand, as well as the Mazda 3 and CX-5, which are completely knocked-down (CKD) models assembled at Inokom’s plant in Kulim.
Currently, the group has over 10 CBU models in its portfolio, but only two CKD models — namely Mazda 3 and CX-5.
Bermaz Auto changed its name from Berjaya Auto after a management buyout last year, as it is no longer a major subsidiary of Berjaya Corp Bhd.
Bermaz Auto has been recording lower car sales of late, in line with declining industry-wide volumes since the beginning of last year. The company, however, is unfazed by the situation.
On the sidelines of Maybank Investment Bank’s Invest Asean 2017 forum in Singapore, Lee said the group’s strategy is to promote higher margin products, such as vehicles with typically higher selling prices. “We don’t want to push [lower-value cars], because the more [of those] cars we push, the more money we lose. So we only push those from which we can make money,” he said.
For the two months ended Feb 28 this year, sales of Mazda brand vehicles in Malaysia fell 41% to 1,264 units from 2,136 units a year ago. Over the entire 2016, Mazda brand vehicles sales shrank 13% to 12,493 units from 14,325 units in 2015.
Bermaz Auto recorded a 39% fall in net profit in its third quarter ended Jan 31, 2017 to RM25.11 million from RM41.13 million in the same quarter a year ago. The earnings figure was the lowest Bermaz Auto charted since the company’s public listing back in 2013. Revenue was down 35% at RM338.68 million, versus RM522.58 million previously.
Despite the weaker financial performance, Lee thinks Bermaz Auto is still outperforming some industry peers. “We are still reporting profit, unlike other players. Most of them are losing money because of the high depreciation of the ringgit,” he said.
Lee also believes that Bermaz Auto’s prospects will improve in FY18, driven mainly by the introduction of Mazda’s new CX-5 and CX-9 models in Malaysia by June this year. The supply of these models is already short globally, he noted.
“These are high margin products, especially the CX-9. Mazda Japan has given us some units to sell in Malaysia,” he said, adding that Bermaz has an average gross profit margin of up to 15%.
Currently, Lee said all 16 units of the CX-9 supplied by Mazda Japan for sale in Malaysia have already been taken up by local buyers, prior to the June launch.
“So people are still buying big-ticket items. For those people at that kind of level of income, there is no such thing as reducing their expenditure. If it is the mass market, yes, I agree [consumer spending is lowering]. Because [some of] these people live hand-to-mouth every day [so] they can’t even consider buying a car. But the middle- to high-income earners, as long as they have steady jobs, they got nothing to worry about,” he also said.
Lee also said Bermaz Auto is not going to provide any discounts for its products, regardless of the lower sales volume it has been seeing.
“In fact, the new CX-5 is going to be few thousand ringgit more expensive, because it is new. We don’t want to give discounts like the others, because it will affect the resale value of existing customers’ cars. We need to keep our customers happy, even post sale. Because at the end of the day, a happy customer will be the best product ambassador,” he added.
On the public listing of Bermaz Auto’s 60.4%-owned Philippines Mazda vehicle distributor, BermazAuto Philippines Inc (BAP), Lee said management remains confident about completing the exercise by the first half of 2017.
He estimated that out of the RM82.49 million proceeds to be raised through BAP’s initial public offering, up to RM22 million would be repatriated to BAP’s Malaysian shareholders. “We have to pay some fees after repatriating the money. So, hopefully, we can pay some dividends after deducting everything,” he said.
For the nine-months ended Jan 31, 2017, Bermaz Auto declared a dividend payout of 8.5 sen per share, versus 6.9 sen in the previous corresponding period, although earnings per share fell to 8.45 sen from 12.84 sen.
A quick check on Bloomberg showed that seven research analysts who track Bermaz Auto have a “buy” call on it, while another five have given it a “hold” recommendation.
With a consensus target price of RM2.21, they reckon the counter still has a 9.4% upside potential, from its closing of RM2.02 last Friday. Year to date, the stock has slipped 5.2%, giving it a market capitalisation of RM2.32 billion.