Analysts rate Bermaz Auto a ‘buy’ as worst is over

Analysts rate Bermaz Auto a ‘buy’ as worst is over
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KUALA LUMPUR (Sept 11): The worst is over for Bermaz Auto Bhd (BAuto) as the group’s performance should stage a recovery in the following quarters thanks to sales and service tax (SST) exemptions and more new model launches, said analysts.

“With the implementation of the SST holiday, we expect BAuto to maintain a sales and production volume of about 1,100 units/month in the next two quarters with a favourable product mix — for example the CX-5 CKD [completely knocked-down]. Post-revision, we are still expecting a stellar growth of 35% in earnings for FY21 for the group,” said AmInvestment Bank.

RHB Bank Research also expects BAuto to post stronger earnings in 2QFY20, bolstered by a full quarter’s worth of SST-exempted sales and improving sentiment in export markets. 

It quoted a report by the Malaysian Automotive Association showing that June and July sales volume of Mazda vehicles — which BAuto distributes — recovered to pre-pandemic levels of circa 1,000-1,200 units per month. 

To recap, in a move to revitalise demand in the domestic auto sector, the government said it would fully waive the SST on CKD cars and halve the tax on completely built-up (CBU) passenger vehicles from June 15 to Dec 31.

Year-on-year, BAuto’s net profit was down 82% to RM9.25 million or 0.8 sen per share in the first quarter ended July 31, 2020 (1QFY21), from RM50.52 million or 4.35 sen per share. Meanwhile, revenue fell 6% to RM448.89 million against RM535.04 million.

Earnings declined on weaker domestic sales and lower margins from its campaigns, which included six-year warranty and free maintenance, as well as losses in Mazda Malaysia Sdn Bhd from lower sales.

Quarter-on-quarter, however, the group’s net profit increased almost four-fold from RM2.46 million or 0.21 sen per share in 4QFY20, when BAuto went through six weeks without sales due to the Movement Control Order. Revenue jumped 50% from RM299.36 million.

RHB Research said BAuto's core earnings of RM9.2 million in 1QFY21 were below expectations, accounting or only 5% and 6% of the research house and consensus full-year earnings forecasts respectively. 

It has slashed its earnings projection by 14% for FY21, 8% for FY22 and 3% for FY23 on the back of lower sales volume from the Philippines, higher finance costs and lower associate contributions.

It is now anticipating the group to post an annual net profit of RM148 million for FY21, RM173 million for FY22 and RM197 million for FY23, which are higher compared to the annual net profit of RM100.51 million recorded in FY20.  

Nonetheless, RHB Research has maintained a “buy” call for BAuto with a lower target price of RM1.70, from RM1.80 previously. 

“Compared to peers, BAuto has a good track record of consistent new model launches,” it said.

Similarly, AmInvestment Bank has retained its “buy” call for BAuto, with a lower fair value of RM1.61 based on unchanged FY21 price-earnings of 13 times. 

The research house has also cut its earnings projections on account of lower sales volume assumptions from the local market.

It has slashed its earnings projection by 10% for FY21 (annual net profit of RM142.9 million), and by 14% for FY22 (RM159.9 million) and FY23 (RM164.4 million).

MIDF Research has also maintained “buy” on BAuto given a solid asset-light business model and a strongly recovering balance sheet and cash flow position.

Besides the tax breaks, BAuto’s key catalysts include a potential third CKD model, brand expansion riding on its solid balance sheet and Inokom’s capacity expansion, and potential National Automotive Policy (NAP) incentives to drive CBU exports.

At 12.21pm, BAuto was traded four sen or 2.84% lower at RM1.37, valuing the group at RM1.57 billion. Some 1.65 million shares exchanged hands. Year-to-date, the stock has fallen some 34% from RM2.06 on Jan 2.

Lam Jian Wyn