This article first appeared in The Edge Financial Daily on January 20, 2020

Bermaz Auto Bhd
(Jan 17, RM2.01)
Maintain add with an unchanged target price (TP) of RM2.48: We attended the Mazda CX-30 official launch at Palm Garden Putrajaya yesterday, hosted by Bermaz Auto Bhd (BAuto) and representatives from Mazda Motor Corp Japan. We like BAuto’s strategy of focusing on the sport utility vehicle (SUV) segment, which is growing in Malaysia, in line with the global trend.

With the CX-30 launch, Mazda Malaysia now boasts five SUV models — the most locally — at between RM130,000 and RM290,000. Mazda Malaysia is offering three CX-30 variants, with two engine options — 2.0L SkyActiv-G or 1.8L SkyActiv-D. The entry-level 2.0L’s retail price is from RM143,000, the high specification 2.0L at RM164,000 and the 1.8L (diesel), RM173,000.

We understand the current CX-30s are fully imported complete built-up models from Japan. BAuto has received bookings for more than 180 units of the CX-30 since Nov 19. The group is targeting 250 units of sales volume per month for 2020, higher than the average monthly sales of the CX-3. However, we see a potential cannibalisation of CX-3 sales given the minimal size difference between the CX-3 and CX-30.

However, it is important to highlight both models utilise different platforms — the Mazda 2 for CX-3, and the larger and newer Mazda 3 for CX-30.

BAuto and Mazda Malaysia are exploring the potential localisation of the CX-30. We reckoned BAuto and Mazda Malaysia could enjoy a greater excise duty reduction by increasing local content if they proceed with the localisation programme — this could help reduce the estimated selling price by almost RM10,000.

In addition, BAuto chief executive officer Datuk Francis Lee, during our CGS-CIMB Corporate Day on Jan 7, 2020, highlighted its 29%-owned associate Inokom Corp Sdn Bhd is looking to invest RM200 million in capital expenditure as part of its expansion plan to build a new paint shop and increase Inokom’s assembly capacity from 40,000 to 80,000 units per annum. We reckoned BAuto may be looking to add this new localisation programme to partially fill up the expanded capacity at Inokom.

Our earnings forecasts are kept and “add” call maintained, with an unchanged TP of RM2.48 based on 12.6 times forecast 2021 price-earnings (P/E), a 10% discount to our target sector P/E of 14 times. BAuto offers an attractive financial year 2020 forecast yield of 7%. We see a higher take-up for its new SUV launches and a faster demand recovery in the Philippines as potential rerating catalysts for the stock. — CGS-CIMB Research, Jan 16