• Keep BUY, new MYR3.60 TP from MYR3.45, 57% upside. 1HFY24 (Apr) earnings beat our and Street expectations. Looking ahead, the cheaper CX- 30 CKD should help support Mazda sales on top of consistent new model launches. Bermaz Auto is our sector Top Pick, due to its relative resilience and handsome 11% FY24F dividend yield.

• Another solid quarter. BAUTO’s core profit of MYR89m brought 1HFY24 core earnings to MYR190.3m, exceeding our and Street estimates and making up 56% and 62% of FY24 forecasts. The earnings beat was mainly due to stronger-than-expected sales volumes in both Malaysia and the Philippines, as well higher-than-estimated ASPs in Malaysia. Its second interim DPS of 5 sen brought YTD DPS to 10 sen.

• Results review. 2QFY24 revenue fell 7.6% QoQ, as Malaysian unit sales were down 6% QoQ. Due to the less favourable sales mix, operating profit fell 18% QoQ, offset by a higher associate contributions (+67% QoQ) that, in turn, stemmed from stronger earnings from its Inokom plant and Kia Malaysia. As a result, core net profit slipped 11% QoQ. Notably, sales of the CX-30 grew 78% QoQ, ie the highest number of units sold in a quarter since the launch of the CKD model in March. The CX-30, alongside other CKD units, should continue to support Mazda’s sales in Malaysia.

• Outlook. BAUTO’s Mazda current order backlog in Malaysia stands at around 2.5k units vs 4.5k units at end September – we note that this is still above the pre-pandemic level of 2k units. We believe the order backlog is due to the CX-30, as the CKD variant of the car remains popular. Despite the backlog normalisation, orders remain resilient, with the current booking rate at 1.5-1.8k units per month vs pre-pandemic levels of 1.3-1.4k units. In the Philippines, we think the newly launched Mazda CX-60 and CX-90 should continue to drive sales volumes.

• Forecast. We tweak FY24F-26F earnings by -3% to +5% as we lift the ASP assumptions for the Malaysia segment, as well as Mazda sales volume estimates for FY24. We cut FY25F-26F sales volumes, however, to be conservative. We also lift our FY24F DPS assumption to 25 sen from 21 sen, assuming a payout ratio of 82%.

• Our now-higher TP of MYR3.60 is based on ascribed target P/E of 11.5x to our rolled-forward CY24F EPS, which is +1.5SD above the 5-year mean of 9x. Our TP includes a 4% ESG premium. Maintain BUY, as the CX-30 CKD model should continue to support sales volumes (given the lower price) vs the CBU variant – this is on top of continued model launches across the Mazda, Peugeot, and Kia marques. We believe BAUTO is undervalued, as it is now trading at 7.6x vs its mean of 9x, while offering an attractive 11% FY24F yield.

• Key downside risks include softer-than-expected orders and deliveries, and resurgent supply chain constraints.

Source: RHB Securities Research - 13 Dec 2023