Bermaz Auto (BAuto) recorded net profit of RM24.8m (+22% YoY) in 2QFY21 mainly due to higher sales volume from domestic operations, spurred by the vehicle sales tax exemption in place until 31st December 2020. However, this improvement was offset by lower sales volume from the Philippine operations. For 1HFY21, core net profit was at RM35.6m (-51% YoY), after excluding one-off expenses related to the Employees’ Share Scheme (ESS) amounting to RM1.6m. Results were below our and consensus expectations, accounting for only 35% and 30% of full year estimates respectively. We adjust our FY21F earnings downwards by 9% to account for lower margin due to change in sales mix, higher promotional expenses and lower-than-expected income from its associates. We maintain our Neutral call on BAuto, with unchanged target price of RM1.46. During the quarter, BAuto declared a second interim dividend of 1.25 sen.

• Higher domestic sales volume. Revenue for 2QFY21 increased 31% YoY to RM600m, from RM457m in 2QFY20 due to higher sales volume from the domestic operations (+47%). Despite the impact of the Covid-19 pandemic, improvement in sales volume for the domestic operations was mainly attributed by the vehicle sales tax exemption in place until 31st December 2020 and aggressive promotional campaign offering free 6 years of warranty and 6 years of free maintenance to boost sales. Nevertheless, this was partly offset by lower sales volume in the Philippines (-60%), which was negatively impacted by the Covid-19 pandemic.
• Earnings cushioned by higher contribution from domestic operations. BAuto reported higher EBIT of RM34m (+49% YoY) in 2QFY21, in-line with higher sales volume from the domestic operation. However, this was partly offset by lower profit contribution from the Philippine operations (-61%) and lower share of profit contribution from the associated companies (-73%). The lower profit contribution from the Philippines operations was mainly due to lower sales volume arising from the softened market as a direct impact from the Covid-19 pandemic. The lower profit contribution from its associated companies was mainly due to the drop in unit sales in Mazda Malaysia Sdn Bhd (MMSB) (-35%) from both the domestic and export markets during the regional lockdown and also the imposition of Conditional Movement Control Order (CMCO) in certain states within Malaysia.
• Dividend. The Board has approved and declared a second interim dividend of 1.25 sen single-tier dividend per share in current quarter (vs 2QFY20: 2.75 sen) to be payable on 5 February 2021. The entitlement date has been fixed on 18 January 2021. This will bring the total dividend declared for 1HFY21 to 1.75 sen (vs 1HFY20: 6.00 sen), translating to a 60% payout ratio. This was higher compared to our forecast of 50% payout.

Source: PublicInvest Research - 11 Dec 2020