This article first appeared in The Edge Financial Daily on October 9, 2019
Bermaz Auto Bhd
(Oct 8, RM2.24)
Maintain outperform with an unchanged target price of RM2.75: After meeting with Bermaz Auto Bhd (BAuto) chief executive officer Datuk Francis Lee, we are positive about the company’s prospects for the second half of financial year 2020 (2HFY20), which could be better than that of 1H, on the recently launched facelifted and turbo variants of Mazda CX-5 and the all-new Mazda CX-8 expected to drive 55% to 60% of total local sales and also generate better export sales to the Philippines.
On Sept 30, 2019, BAuto launched its popular Mazda CX-5, a completely knocked-down (CKD) model, and on Oct 1, 2019 the Mazda CX-8 (CKD). Targeted sales of the CX-5 are about 7,000 units per year — the current booking is about 500 units; and the CX-8 about 2,500 units per year, with the current booking about 200 units.
Both models are locally assembled at the Inokom plant in Kulim, Kedah with a tentative pricing of about RM137,000 to RM180,000 for the CX-5; previously, no turbo variants were sold at RM133,000 to RM174,000. The CX-8 will cost 15% to 20% more than the CX-5 CKD at about RM175,000 to RM205,000. BAuto and its partners are looking to invest up to RM200 million to expand its 29%-owned Inokom’s plant production capacity from 50,000 to 80,000 units per annum by 2021 or 2022, catering to a growing production demand for the all-new models.
The 2019 CX-5 and all-new CX-8’s final pricing is expected to be unveiled within three weeks from the launch date pending a pricing approval from government agencies, which could drive most of the invoiced sales to 2HFY20, hence its second-quarter (2Q) sales [August to October] could be weaker or flat. Nevertheless, the overall results are expected to be cushioned by stronger associates as BAuto switched production to the all-new CX-5 and CX-8. The Inokom plant has started production of the latest Mazda model in August 2019.
Take note that 1Q results were affected by a weaker gross profit margin following the outgoing Mazda CX-5 run-out promotion as more sales incentives were given to clear inventories of this model. However, this was cushioned by stronger associates’ contributions due to a production ramp-up for the outgoing Mazda CX-5 volume — with a ready stock up to September 2019 — after ceasing the outgoing CX-5 production in July 2019.
BAuto is committed to delivering a dividend payout of at least 80% of its profit after tax and minority interest (Patami), translating into a dividend yield of about 7% to 8%. BAuto has been paying an average dividend payout of about 90% of its Patami for the last five years.
BAuto has launched the all-new Mazda 3 sedan and hatchback — complete built-up (CBU) models — in July 2019, the CX-5 (CKD; Sept 30) and the CX-8 (seven-seater sport utility vehicle; CKD; Oct 1). BAuto is also looking to bring in the all-new CX-30 (CBU) from Thailand and the facelifted CX-3 (CBU) in December 2019.
BAuto will introduce another new CKD model based on demand, to be introduced at the Tokyo Motor Show on Oct 23, 2019. With the estimated launch in calendar years 2020 or 2021, it could be an electric vehicle (EV), tentatively in two formats — a full EV and a range extender powered by a small rotary engine (necessary for other markets where daily commutes are longer or in Malaysia which lacks the EV infrastructure. — Kenanga Research, Oct 8