• Maintain BUY with higher MYR3.45 TP from MYR2.90, 63% upside. Bermaz Auto’s 9MFY23 (Apr) earnings blew past our and Street’s full-year estimates at 92% and 95%, mainly as revenue and associate contributions outperformed. Looking ahead, the volume growth from Mazda’s newly launched CKD CX-30, and from Kia and Peugeot’s new models should continue to drive earnings growth. The stock yields an attractive 9% FY24F and currently trades at 8.3x FY24F P/E.

• Above expectations. 3QFY23’s MYR87m earnings brought the 9MFY23 figure to MYR203m, making up 92% of our full-year estimate and 95% of Street’s – significantly above expectations. The deviation was mainly due to higher-than-expected revenue and associate contributions. Its third interim DPS of 4.5 sen brings YTD DPS to 11 sen, above our FY23F DPS of 13 sen.

• Results highlights. 3QFY23 revenue rose 25% QoQ, mainly driven by a 23% increase in volume. Despite EBIT rising by a slower 22%, its 60% jump in associate contributions – mainly driven by Mazda Malaysia (MMSB) – helped lift PBT by 26% QoQ. MMSB’s strong performance was due to higher volumes, with economies of scale likely driving its margin improvement. Further boosted by a lower effective tax rate and minority interest, core earnings rose by 33%.

• Outlook. BAUTO’s prospects remain exciting across all three brands. Its Mazda volumes should continue to increase in the coming quarters, with sales of the CKD CX-30 expected to contribute to 4QFY23, and with an expected gradual recovery in CBU allocations. Kia’s volumes will likely steadily climb, aided by the launch of new models (eg Kia Sorento) and as Kia Carnival importation hiccups are resolved. The soon-to-be-launched Peugeot Landtrek could continue to boost Peugeot’s volumes. Although we forecast Kia’s volumes will grow 36% YoY in FY24F, we note that BAUTO’s management is currently primarily focused on building Kia’s brand equity – mainly by improving its after-sales experience.

• We lift FY23F-25F forecasts by 23-18%, as we lift volume and associate contribution assumptions. We lift our DPS assumption to 17-21 sen from 13-16 sen, conservatively assuming a payout ratio (DPR) of 73-75%. With little incremental capex requirements, and an average pre-pandemic DPR of 87%, there is further upside to our current DPS estimate.

• BUY, new MYR3.45 TP, based on an unchanged 13x FY24F P/E and 4% ESG premium. Currently, the stock is trading at an attractive 8.3x FY24F EPS – at a significant discount to its 5-year historical average P/E of 11.5x – which we think undervalues the stock. We still like BAUTO for its visible earnings growth and 9% FY24F yield. Key downside risks: Softer-than- expected orders and deliveries, and resurgent component shortages.

Source: RHB Research - 14 Mar 2023