Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on October 24, 2022 - October 30, 2022

BERMAZ Auto Bhd (BAuto) has gone into overdrive since it acquired the Peugeot distributorship in December 2020, before taking over the Kia distributorship in April last year.

It was gutsy of the automotive firm, which had focused on distributing and selling Mazda vehicles in Malaysia and the Philippines, to secure two new distributorships amid the Covid-19 pandemic, which severely disrupted supply chains globally.

At a time when chip shortages have hindered car makers from meeting pent-up demand, BAuto appears resilient, with its profit growing by a third to RM133.8 million in the financial year ended April 30, 2021 (FY2021), before rising a further 16% to RM155.1 million in FY2022.

Group CEO Datuk Francis Lee Kok Chuan reveals that Kia and Peugeot started to contribute to its earnings in 1QFY2023 ended July 31, although their contributions are nowhere near that of Mazda.

“Judging from our 1QFY2023 results, as well as our strong bookings, we remain optimistic that FY2023 will be another good year for us. Having said that, whether or not we will eventually see profit growth in FY2023, it really depends on the supply chain situation,” he tells The Edge in an interview.

Lee says if BAuto is able to keep the sales momentum going, Kia and Peugeot will continue to contribute positively to the group.

“We have almost cleared out all the old legacy issues. Now, our focus is to rebuild brand confidence among the Malaysian public. We want car buyers to know that BAuto is there for them. If they have any problem, they can always come to us. To us, the car ownership experience is very important. If we take care of our customers, they will come back to us,” he adds

Lee, 63, was appointed to the board of BAuto in July 2011. He is also chairman of Bermaz Auto Philippines Inc, as well as director of Mazda Malaysia Sdn Bhd and Inokom Corp Sdn Bhd.

Sales of Kia and Peugeot picking up

In 1QFY2023, BAuto’s earnings jumped almost fivefold to RM50.16 million from RM10.27 million a year earlier. The stellar performance during the quarter was mainly due to the increase in the overall sales volume seen by the group’s Mazda, Kia and Peugeot operations in Malaysia, as consumers rushed to register their vehicles before the expiry of the Sales and Services Tax (SST) exemption that ended on June 30, 2022. The strengthening of the ringgit against the yen also contributed to its improved results.

Lee acknowledges that the SST exemption — announced in June 2020 as part of the Penjana stimulus package — has been a lifeline for automotive companies over the last two years. The incentive allows for 100% sales tax exemption on completely knocked-down (CKD) vehicles and 50% sales tax exemption on completely built-up (CBU) vehicles.

CKD refers to cars that are put together at a local manufacturing facility, while CBU refers to those assembled in a foreign country and then imported into the local market as a complete, operable vehicle.

Lee says that post the SST holiday, BAuto has subsidised its customers with a 50% SST rebate campaign since July. “The campaign has given us encouraging bookings in the following months and prevented our bookings momentum from dying off,” he adds.

For Mazda cars, BAuto will absorb 50% of the SST until the end of December. As for Kia and Peugeot, the group will decide whether or not to extend the campaign period on a month-to-month basis, depending on the booking figures.

Lee observes that from July onwards, the booking numbers have remained “pretty decent”. “We are talking about monthly orders of 1,500 units [for three brands]. Obviously, this is much lower than the monthly orders of 4,000 to 5,000 units during the SST holiday. Now, it has normalised to pre-pandemic levels,” he elaborates.

Nevertheless, Lee insists that at this point in time, it is hard to predict BAuto’s future earnings performance. “What we do know is that there is still a shortage of automotive chips and car components. Yes, our bookings look good, but we still need to observe the issue of supply chain disruption, which may continue to affect our operations and, hence, profitability,” he warns.

In terms of car sales, the numbers look promising. On average, BAuto sells about 150 units of Kia vehicles and between 160 and 180 units of Peugeot vehicles every month.

“The numbers have been growing steadily from hardly anything about two years ago. All these are positive signs for the two brands. Bear in mind that we are building from a low base. It takes time to rebuild a brand,” says Lee.

As a car is a big-ticket item, buyers need to think carefully before they commit to taking a hire purchase loan, particularly in the current economic environment.

“Like it or not, cars are the second most expensive household expense, after property. People will only commit to buying a car if they have confidence in our brands,” says Lee.

Roll-out of new models

BAuto has 10 CBU models in its Mazda portfolio, but only two CKD models, namely the CX-5 and CX-8. In its Kia portfolio, there are two CBU models — the Carnival 11-seater and EV6 — and a CKD model, the Carnival luxurious version 7-seater and 8-seater.

The Peugeot portfolio boasts three CKD models — the 2008, 3008 and 5008. It currently has no CBU models.

Since securing the Kia and Peugeot distributorships, a lot of hard work has gone in to revive the two brands in Malaysia. For Kia, BAuto brought in the All-New Carnival CBU model in December before launching the EV6, a CBU electric car, in June. The group commenced mass production for the Carnival CKD model in July.

“Next, our plan is to launch our second Kia CKD model in the All-New Sorento by the end of this year. Our possible third CKD model could be Sportage, but it has not been confirmed yet,” says Lee.

“Other new CBU models in our pipeline are Carens, Niro and PBV1 (EV). Hopefully, with all these positive developments, Kia will have higher visibility in the Malaysian market.”

He says the plan for Sorento is to export the cars to Thailand, while making Malaysia an automotive hub for Kia in Asean. For Peugeot, its first full-fledged flagship 3S Centre in Glenmarie was officially opened in January during the launch of the all-new 2008 SUV — its third Peugeot CKD model.

“It’s all coming along quite nicely. Together with the new 3008 SUV and the new 5008 SUV — both launched in November last year — we now have three Peugeot CKD models. With more CKD models than last year, we expect to see a higher sales volume from Peugeot,” says Lee.

By year end, BAuto plans to bring in two new CBU models, namely Landtrek (from China) and e-2008 EV (from France).

Previously known as Berjaya Auto Bhd, the company took on its current name following a management buyout (MBO) in 2016, cutting its association with Berjaya Corp Bhd — the flagship of billionaire Tan Sri Vincent Tan Chee Yioun.

Datuk Seri Ben Yeoh Choon San, the then CEO of BAuto, spearheaded the MBO by leading 10 members of the senior management team — including Lee and Datuk Amer Hamzah Ahmad — in buying a substantial stake from Berjaya Corp. The trio behind BAuto own an indirect stake of 14.53% in the automotive group, held through their investment vehicle Dynamic Milestone Sdn Bhd.

Given its decent dividend yields — currently at about 5.8%, according to AbsolutelyStocks — BAuto ticks all the boxes for investors, especially institutional funds.

The Employees Provident Fund (EPF) is the single largest shareholder of BAuto with a 17.16% stake. Other prominent shareholders include Permodalan Nasional Bhd, Kumpulan Wang Persaraan (Diperbadankan), Aberdeen Asset Management plc and Prudential plc.

The share price of BAuto had gained 19% year to date to close at RM1.93 last Thursday, giving the company a market capitalisation of RM2.24 billion. The counter is currently trading at a price-earnings ratio (PER) of 11 times.

In an Oct 17 report, Maybank Investment Bank research associate director and automotive analyst Liaw Thong Jung maintained his “buy” call on the stock, with a target price of RM2.90. He points out that BAuto aims to surpass its FY2019 vehicle sales — a total of 19,000 units in Malaysia and the Philippines — boosted by strong bookings to date, as well as new product launches over the next 12 months.

BAuto’s targets for Malaysia are: (i) 18,000-19,000 units of vehicles in FY2023 (Mazda: 13,000-13,500 units; Kia: 2,500 units; Peugeot: 2,500 units), and (ii) a higher 22,500 units in FY2024 (Mazda: 15,000 units; Kia: 4,000 units; Peugeot: 3,500 units).

Liaw believes these are sensible targets, underpinned by the sustained strong bookings post-SST holiday and aided by the 50% absorption of SST until December.

Also providing a boost are the zero electric vehicle (EV) tax effect until December 2024, new roll-out of CBU and CKD models at attractive prices and improving franchise value for Kia and Peugeot with better after-sales service, product pipeline, built quality, reliability of parts and warranty.

“We do not rule out BAuto surpassing these targets, given the high bookings, attractive incentives and new models roll-out,” says a confident Liaw.

 

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