This article first appeared in The Edge Financial Daily on September 14, 2018

KUALA LUMPUR: Bermaz Auto Bhd (BAuto), which distributes Mazda vehicles in Malaysia and the Philippines, saw its net profit surge 2.5 times to RM50.28 million in the first financial quarter ended July 31, 2018 (1QFY19) from RM20.21 million a year ago, on higher revenue and improved gross profit margin from domestic operations, and higher share of profit contribution from its associate Mazda Malaysia Sdn Bhd (MMSB).

In a filing with Bursa Malaysia yesterday, BAuto said the improvement in gross profit margin was mainly due to favourable sales mix and a stronger ringgit against the yen, while the higher share of profit contribution from MMSB was mainly due to an increase in production volume for the new CX-5 model to cater for both the domestic and export markets.

However, this was partly offset by a lower profit contribution from the Philippine operations, in line with the drop in sales volume mainly on Mazda2 and Mazda3 models, and higher cost of sales due to weakening of the peso, it added.

This resulted in a higher earnings per share of 4.33 sen for 1QFY19 compared with 1.75 sen for 1QFY18.

Quarterly revenue also rose 24.1% to RM485.4 million from RM391.23 million in 1QFY18, mainly due to improvement in sales volume from the domestic operations as the change in goods and services tax (GST) from 6% to 0% in June to August this year boosted customer demand, especially for the new CX-5 model.

Mazda’s sales volume grew 43% for the seven months of 2018 compared with the same period last year.

BAuto said this was partly offset by a drop in sales volume from the Philippine operations subsequent to the implementation of the tax reform for acceleration and inclusion (TRAIN) law in January. “The TRAIN law has caused an increase in excise tax and consequently car prices also increased, thus affecting the demand for motor vehicles in the Philippines,” it explained.

Boosted by strong 1QFY19 performance, the group declared a first interim dividend of 2.5 sen per share for the financial year ending April 30, 2019 (FY19), payable on Oct 26.

On prospects, BAuto said the automotive segment’s market trading conditions are expected to remain challenging with a competitive trading environment, weakening of the ringgit and cautious consumer sentiment as a result of uncertainties in the local and global economy.

“With the implementation of the sales and service tax (SST) on Sept 1, the group is absorbing the SST for customers who had placed their bookings for Mazda cars prior to the date.

“This is to build customer loyalty and is expected to increase costs and reduce the group’s profitability in the coming quarter. The impact may be mitigated, however, through lower sales volatility after August this year with potentially higher sales volume, reduced marketing and advertising expenses, as well as dealer incentives,” said BAuto.

In the Philippines, BAuto is seeking to preserve its sales volume through the growth in the number of dealerships from 18 at the beginning of FY18 to 21, expected at the end of FY19, as well as new model introductions, which are expected to contribute to a reasonable growth rate.