Investment Highlights

• We reiterate our BUY rating, earnings forecasts and fair valu of RM3.42/share, based on 12x FY25F P/E at its historical year mean, for Bermaz Auto (BAUTO). No change to our neutr 3-star ESG rating.

• Business is progressing well with 4QFY24 looking to b slightly better on YoY basis.

• This contrasts with 2Q-3QFY24 revenue, which were low YoY. The key difference is it was the transition phase wi many Mazda models about to get a new “facelift” version, an customers naturally waited for the model to show. Since th launch of the highly popular CX5 facelift version, BAUTO ha amassed more than 2,500 orders year-to-date (YTD).

• For FY25, BAUTO aims for 5% growth for Malaysia. Accordin to statistics from MAA, the number of car sales from Mazd and Kia grew by <2% YoY in Jan-Feb 2024. This means w should see meaningful growth in the months ahea Additionally, the Philippines market is building on its stron momentum from 3QFY24, which registered a 90% revenu growth.

• Both Mazda and Kia EV models are not making much tractio currently due to perceived uncompelling value proposition b customers. We notice that car manufacturers with a multi-fu strategy (same platform for ICE, hybrid and BEV) cann compete with standalone EV platforms in terms of price an performance (lower range for Mazda and Kia EV models). Th is where the Chinese EV makers excel, and the advantage structural.

• BAUTO said its partnership with Xpeng (XPEV US Equity, N Rated) is a strategic fit because Xpeng is China’s premium E comparable to Tesla (TSLA US Equity, Not Rated), and BAUT can excel with its high service mantra and loyal customer bas However, BAUTO acknowledges that its sales volume w likely be small, in the range of 500-1,000 per year, but it w contribute positively to the group’s future profitability.

• We are indifferent to this tie-up with Xpeng. Whilst w acknowledge Xpeng’s premium product, we are concerne that the company is consistently loss making and burning i cash resources. This raises the question of whether it ca survive over the long term.

• Overall, we believe the ICE models of Mazda and Kia will d well. The initial reception for new model launches has bee promising, and the comments by customers on social med are highly positive.

• The stock currently trades at an attractive 8.6x FY25F P/ which is at a 28% discount to its 5-year historical average.

Source: AmInvest Research - 25 Mar 2024