U/G BUY from Neutral, new MYR2 TP from MYR1.74, 12% upside, 5.6% yield. FY22 (Apr) results beat our and Street’s expectations, mainly on stronger-than-expected margins and partially lifted by a higher CKD:CBU mix. Backlog orders remain very strong, with further upside from a potential extension of the Sales & Service Tax (SST)-holiday. We upgrade our call on Bermaz Auto’s robust orders, growth in Peugeot and Kia, and attractive valuations. This report marks the transfer of coverage to Jim Lim.
FY22 earnings of MYR156m beat our and Street’s estimates by 20% and 18%. As revenue was in line, the deviation came from stronger-than- expected margins – lifted by seasonally strong 4Q margins. Its fourth interim DPS of 2 sen and special DPS of 2.5 sen brought FY22 DPS to 8.75 sen, above our 7 sen estimate.
Results review. Core earnings rose 16% YoY, mainly lifted by the strong operating profit in Malaysia – lifted by a 1.5ppts expansion in PBT margins and partially fuelled by a higher proportion of CKD sales (86% of total Mazda sales vs the 3-year mean of 73%). QoQ, its strong car sales (+44%) in Malaysia lifted local revenues by 45% while the aforesaid seasonally stronger 4Q margins lifted EBIT by 120%. Peugeot and Kia continue to grow steadily, lifted by the Peugeot 2008, 3008, and 5008, and Kia Carnival.
Outlook. We gathered that BAUTO will absorb the SST for orders placed before end June, fuelling an estimated 5-6 months of backlogs. Recall: 3QFY19 partially outperformed on a similar strategy. With such a strong backlog, management is not concerned over any cancellations post the SST exemption. As CBU supply remains tight, we expect the CKD:CBU ratio to remain at similar levels in the coming quarter or two. Although a higher CKD sales mix may marginally enhance margins, it reduces BAUTO’s ability to reap the benefits from a weakening JPY/MYR, given that Mazda CBUs are purchased in JPY.
Forecast. We lift FY23F-24F core earnings by 15-7% and introduce an FY25F core profit of MYR250m with an 18% YoY growth fuelled by the continued growth of Peugeot and Kia. The elevated earnings, coupled with a higher ascribed P/E of 13x from 12x, lifts our TP to MYR2. The higher valuation accounts for BAUTO’s improving prospects and resilience against any softening demand/rising costs. Our TP includes an ESG premium of 2% for its above-median ESG score of 3.1 based on our proprietary in- house methodology. We raise FY23-24 DPS to 10-12 sen from 9-11 sen.
We like BAUTO for its: i) Resiliency against any softening of demand post the SST exemption, ii) continued growth in Kia and Peugeot from new models/facelifts and EVs, and iii) attractive valuation of 11.2x FY23 P/E, which is at an unjustified 18% discount to the 5-year mean of 13.7x given its favourable prospects. Further upside could come from a potential SST exemption extension. Key risks include a strengthening JPY/MYR, softer- than-expected demand post SST exemption, and worse-than-expected component shortages.
