This article first appeared in The Edge Financial Daily on June 24, 2019
Bermaz Auto Bhd
(June 21, RM2.60)
Maintain add with an unchanged target price (TP) of RM3.30 sen: We hosted a meeting with Bermaz Auto Bhd (BAuto) chief executive officer (CEO) Datuk Francis Lee last week following its fourth-quarter financial year 2019 (4QFY19) results announcement. About 20 domestic buy-side fund managers and analysts attended the meeting. We are encouraged to learn that BAuto is moving closer to securing its third sport utility vehicle (SUV) localisation assembly programme after CX-5 and CX-8 as the group is exploring capacity expansion at Inokom assembly plant.
BAuto is looking to launch the upcoming CX-8 completely knocked-down model in September. We learnt that BAuto has received bookings for over 100 CX-8 units, despite not having announced its official selling price.
We estimate CX-8’s retail price to start from RM180,000, which is competitive compared with its peers such as Hyundai Santa Fe and Toyota Fortuner.
Overall, BAuto expects to sell about 250 to 300 units per month in Malaysia. In addition, BAuto’s 30%-owned associate, Mazda Malaysia Sdn Bhd (MMSB), plans to export the CX-8 model to other Asean countries.
BAuto is also exploring the possibility of expanding its assembly capacity at Inokom plant in order to meet export demand for CX-8 and potentially a third localisation programme.
BAuto and its partners are looking to invest up to RM200 million to build a new dipping plant and paint shop using the latest painting technology that could increase Inokom’s production capacity from 30,000 to 50,000 units per annum. To recap, MMSB sold nearly 22,000 units in FY19 and it expects to sell about 24,000 to 25,000 units in FY20.
BAuto plans to add new 3S (sales, spare parts and after-sales service) centres nationwide to improve its sales and service network. BAuto recognises that competition is increasing in the SUV segment recently following the introduction of X70 by Proton, but it expects minimal direct impact from X70 given that BAuto has a strong customer base. About 70% to 80% of its Mazda buyers are from its existing customer base.
Our RM3.30 TP is based on 14 times 2020 forecasted price-earnings (P/E), in line with the target sector P/E. Higher take-up from new launches, stronger export growth and faster demand recovery in the Philippines are potential rerating catalysts. Rising competition in the SUV segment, weaker earnings delivery and lower dividend payout are downside risks. — CGSCIMB Research, June 20