Thursday 28 Mar 2024
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KUALA LUMPUR (Dec 11): Analysts have trimmed their forecasts for Bermaz Auto Bhd (BAuto) as its sales margins have yet to recover fully despite the company posting stronger earnings for the second quarter ended Oct 31, 2020 (2QFY21).

The car distributor's core net profit for the first half ended Oct 31, 2021 (1HFY21) came in below their estimates and that of the consensus as well.

MIDF Research analyst Hafriz Hezry said while the margin of earnings before interest and tax (EBIT) was up 1.5 percentage points at 5.7%, it was still compressed by the six plus six years of free warranty and maintenance promotion.

"Though the additional one year (against five years originally) has to be full provided for in the profit and loss [statement], the impact on its cash flow is not as significant since the cars that are sold only return for servicing on a gradual basis.

"More importantly, we understand that the promotion will be discontinued from January 2021 — this should provide the next leg of catalysts for a margin recovery," he said.

Due to the weaker-than-expected results, he revised his forecasts for FY21/22 by 28%/24% to reflect mainly his lower margin expectations.

"Despite the revision, we nonetheless still expect earnings to recover by 66% for FY22, driven by sustainable volumes and a further recovery in margins in the absence of further aggressive promotional activities. This should be coupled with normalising volumes at the manufacturing associates (Inokom and Mazda Malaysia Sdn Bhd [MMSB]). Our forecasts are now conservatively 26%/5% below the consensus over FY21/22," he said.

He kept his "buy" rating of the stock, but trimmed his target price (TP) to RM1.70 from RM1.75 earlier.

Meanwhile, Hong Leong Investment Bank (HLIB) Research analyst Daniel Wong said BAuto's Malaysian operations will continue to take advantage of the sales and service tax (SST) exemptions until year end, while MMSB is expected to stage a turnaround with the availability of completely knocked down (CKD) packs since October. He noted that upcoming new model launches to look forward to include the MX-30, BT-50 and CX-30 CKD (completely knocked-down units).

"On the other hand, Its Philippine near-term outlook remains challenging due to the implementation of GCQ (general community quarantine) to control the outbreak of Covid-19 in the country," he said.

Wong revised his earnings forecast for FY21 down by 20%, but raised his FY22-23 estimates by 33.7% and 1.7% respectively, to account for higher group sales volumes and margins as well as bigger contributions from its associates.

He maintained his "hold" call, but cut his TP to RM1.35 from RM1.38 earlier, as he kept it pegged at a price-earnings ratio (PER) of 14 times 2021 earnings.

Meanwhile, CGS-CIMB Research analyst Mohd Shanaz Noor Azam expected BAuto to post stronger earnings for 2HFY21, due to a healthy sales recovery momentum driven by strong demand, as its order backlog stood at more than 1,200 units as of yesterday.

"We project Bermaz to deliver a 10% sales volume growth for FY21, driven by the sales tax holiday in Malaysia," he said.

He cut his estimates for its FY21-23 earnings per share (EPS) by 15%, 8% and 5% respectively to reflect narrowing margins due to changes in its sales mix and lower contributions from MMSB.

"We reiterate 'add', with a lower TP of RM1.70 [from RM1.80], still based on 14 times CY21F PER (forecasted for calendar year 2021), in line with our target sector PER. The stock also offers decent CY21-22F yields of 4.9%-5.2%," he said.

Analysts also highlighted BAuto's net cash tripling to RM227 million, from RM71 million, in 2QFY21 after it pared down its inventories, receivables and short-term borrowings.

"This strong war chest positions BAuto for structural growth driven by brand expansion," said MIDF's Hafriz.

He acknowledged BAuto's recent success in snagging the Peugeot distributorship through its 20%-owned Berjaya Auto Alliance Sdn Bhd (BAASB) as a positive but small part of its expansion drive.

"The big one, we believe, is a potential win of the Kia distributorship, where BAuto is likely to take a majority stake and play a role in the CKD operations. We also do not rule out a potential role as a regional hub should talks materialise favourably. Meanwhile, for BAASB, we think there is a chance that it could turn in some small profit even in its first year of operations, provided the legacy five-plus-five years' warranty programme left by Naza remains manageable.

"BAASB’s immediate-term focus is on addressing aftersales, expensive and shortages of parts via alternative OEM (original equipment manufacturer) sourcing," he said.

To recap, BAuto's net profit for 2QFY21 rose 22% year-on-year (y-o-y) to RM24.79 million, versus RM20.39 million, boosted by an improvement in domestic sales.

Its revenue climbed 31% y-o-y to RM599.84 million, compared with RM457.17 million a year ago.

In light of the better earnings, BAuto declared a second interim dividend of 1.25 sen per share for FY21, which will be paid on Feb 5 next year, lower than the 2.75 sen per share paid a year ago.

Quarter-on-quarter (q-o-q), BAuto’s net profit jumped 168% from RM9.25 million for the preceding quarter as revenue rose 34% from RM448.894 million.

At 10.51am today, the stock was down six sen or 4% at RM1.44, giving it a market capitalisation of RM1.72 billion.

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