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This article first appeared in The Edge Financial Daily on December 12, 2019

Bermaz Auto Bhd
(Dec 11, RM2.05)
Maintain buy with a lower target price of RM2.65:
Bermaz Auto Bhd’s second quarter of financial year 2020 (2QFY20) core net profit fell sharply to RM21.5 million (-71% year-on-year, -59% quarter-on-quarter). This brought earnings for the first half of FY20 (1HF20) to only RM73 million, making up 33% and 31% of our and consensus full-year estimates respectively. The reduced earnings were attributed to lower sales volume, poorer sales mix and lower contribution from the company’s associates.

As 2QFY20 only captured 1.5 months sales of the new facelift CX-5 model and did not record CX-8 sales — which only received pricing approval in mid- November — we expect sales contribution from these models and earnings to improve in 2HFY20.

Upside to earnings may come from better sales of new models, especially CX-8, as well as higher-than-expected contribution from its associates, mainly Mazda Malaysia Sdn Bhd.

Cut earnings forecasts for FY20/21/22 by 16%/9%/9% mainly on lower sales volume and margin assumption. While we are positive on contributions from CX-5 and CX-8 models going forward, we have lowered our volume and margins assumption due to delay in CX-8 sales; expected economic slowdown which might affect consumer affordability; and also the competitive sport utility vehicle segment as more models are expected to be launched next year.

Post-earnings adjustment, Bermaz Auto’s valuation is still attractive at 11 times FY20 price-to-earnings (-1 standard deviation of five-year mean) and offers good dividend yield of 7% (assuming 90% payout). — AllianceDBS Research, Dec 11

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