KEY INVESTMENT HIGHLIGHTS

• 1QFY25 results on track with expectations
• BAuto takes 11.54% stake in EPMB to support expansion plans
• All-new Kia Sportage is the next key launch
• No change to earnings forecasts
• Maintain BUY with a revised TP of RM3.03

Within expectations. Bermaz Auto Berhad (BAuto) posted a core PATAMI of RM68.6m for 1QFY25 (FYE April), aligning with expectations at 20%/22% of our/consensus full-year estimates. The Group announced a first interim dividend of 3.50 sen per share, reflecting a 60% payout ratio.

Quarterly. Core PATAMI in 1QFY25 declined by -32.7%yoy, reflecting a -22.3%yoy drop in revenue, largely driven by weaker domestic operations stemming from lower sales volumes due to increased competition and the clearing of the Mazda 3 backlog in 1QFY24. Sequentially, revenue dropped by -9.7%qoq due to weaker domestic operations, as highlighted earlier. PBT margin also fell to 11.6% (4QFY24: 13.9%), primarily due to lower margins from its Kia operations and the non-renewal of the Peugeot distributorship agreement in Feb-24.

EMPB issues 30% of shares, split between the largest shareholder and BAuto. BAuto, through its 100%-owned subsidiary Bermaz Capital Sdn Bhd (BCSB), has agreed to subscribe to 33.0 million new shares in EP Manufacturing Berhad (EPMB), representing about 15% of EPMB's issued share capital. EPMB, an automotive parts manufacturer, has recently secured assembly deals with BAIC and Great Wall Motor (GWM) and plans to invest over RM100.0m in a new manufacturing hub at Hicom Pegoh Industrial Park, Melaka. The subscription, priced at RM0.60 per share for a total of RM19.8 million (6% of BAuto's net cash as of 1QFY25), will help fund the setup costs. The valuation seems fair since the deal is priced at 9.4x EPMB's annualised 1HFY24 figures, which is just above its sector's historical mean of 9.0x. Upon completion by Dec- 24, BAuto will hold an 11.54% stake in EPMB's expanded share capital. There is no indication as to whether EPMB will assemble BAuto's new models, as the current assembly is handled by Inokom's plant in Kulim, Kedah.

Maintain BUY. No changes have been made to our earnings estimates. Upcoming launches include the Mazda CX-60 and Kia Sportage (CBU in 4QCY24 (2HFY25), with the latter expected to drive volume in FY25F.

However, we have lowered our target PER to 10.3x (the 5-year historical mean) from 11.8x, due to anticipated increased competition in the mid- range segment. Consequently, our target price has been adjusted to RM3.03 (10.3x FY25F) from RM3.50. We maintain a BUY call, as the stock is trading at -0.5SD below its historical mean and offers an appealing dividend yield of 10%. BAuto maintains a healthy balance sheet with a net cash position of RM324.1m (27.6 sen per share) as of 1QFY25.

Source: MIDF Research - 12 Sep 2024