KEY INVESTMENT HIGHLIGHTS

• 2QFY25 results were below expectations
• Auto sales hit by Chinese competition
• Kia poised to drive FY25 volume
• Downward revision to earnings between -16% to -26%
• Maintain BUY with a revised TP of RM2.21

Below expectations. Bermaz Auto Berhad (BAuto) posted a core PATAMI of RM41.9m for 2QFY25 (FYE April), bringing the 6MFY25 total to RM110.3m. This result fell short of expectations, representing 32%/37% of our/consensus full-year projections, due to weaker-than- expected margins. A second interim dividend of 3.0 sen was declared, accompanied by a special dividend of 7.0 sen, bringing the total dividend for 6MFY25 to 13.5 sen, reflecting a payout ratio of 143%.

Quarterly. The group's revenue dropped -35.8%yoy, mainly driven by lower domestic Mazda (-38.9%yoy) and Kia (-55.1%yoy) sales amid rising competition from Chinese-made vehicles. Core PATAMI declined more steeply by -52.9%yoy, with margins contracting by -3.1 percentage points due to a less favourable sales mix in its Philippines operations. As compared to 1QFY25, revenue declined by -23.6%qoq, with auto sales volume decreasing by -25.4%qoq. The higher sales volume in 1QFY25 was due to the return of the remaining PEUGEOT marque vehicles to Stellantis N.V. Overall, core PATAMI declined more sharply by - 38.9%qoq, driven by the factor mentioned above.

Outlook. The Group expects continued challenges amid rising competition from competitively priced Chinese-made vehicles with advanced connectivity features. The Kia marque's domestic operations, driven by the recent launch of the fifth-generation Sportage (C-segment SUV), are expected to partially offset the softer sales from Mazda marque's domestic operations. For Mazda, the upcoming lineup in CY25 includes the C-segment CX-5 MS Limited Edition package (Jan-25), as well as its upmarket push with the introduction of the new D-segment CX-60 (2QCY25) and CX-80 (3QCY25).

Maintain BUY. Accounting for lower profit margins, we have revised our FY25E/FY26F earnings down by -26%/-16%. Consequently, the target price has been reduced to RM2.21 (from RM3.03) to reflect these adjustments, a valuation base year rollover, and a lower PER of 9x (from 10.3x) to better reflect the heightened competition in the sector. The stock is currently trading at -0.75SD below its 5-year historical mean. We maintain our BUY call on BAuto, which is supported by its attractive dividend yield.

Source: MIDF Research - 13 Dec 2024