• Still BUY, with new MYR3.05 TP from MYR3.25, 29% upside and c.10% FY25F (Apr) yield. Bermaz Auto’s 1QFY25 core earnings of MYR68m largely met ours and Street’s expectations. We think BAUTO is undervalued, trading at 8x CY25 P/E, below its historical mean of 9x. Not only that, its higher-than- sector average c.10% yield remains as its plus point.

• In line. We deem 1QFY25 earnings to be in line with ours and Street’s expectations, making up 22% of full-year forecasts considering the seasonally weak quarter. BAUTO declared a 1QFY25 DPS of 3.5 sen, largely in line with our FY25 DPS forecast of 23 sen.

• Results highlights. BAUTO’s 1QFY25 revenue fell 22% YoY (-10% QoQ), as sales volumes fell 23% YoY. Besides the seasonally weak 1QFY25, the drop in sales was mainly due to high base effect as BAUTO received large shipments of Mazda 3, Mazda 6, and CX-3 CBU in 1QFY24 to fulfil backlogged orders during the COVID-19 pandemic. Its CKD sales volumes also dropped 6% YoY amidst stiff competition in the mid-market segment due to influx of Chinese carmakers. However, the total 1QFY25 Mazda volume in Malaysia was better-than-expected, making up 28% of our FY25 forecasts.

• BAUTO signed an agreement to acquire 15% of EP Manufacturing’s (EPMB) existing share capital for MYR19.8m via private placement. EPMB supplies Mazda Malaysia (which BAUTO has a 30% equity interest) automotive metal parts and components to assemble its CKD models at Inokom plant. We are positive on this development as it shows support for EPMB’s expansion and ensures stability of components supply to Mazda Malaysia in the future.

• Outlook. We think BAUTO’s volumes will still be mainly supported by its volume-heavy CKD models, ie CX5, CX30, and CX8 while the anticipated launch of the all-new Kia Sportage in 4QCY24 will contribute to Kia’s volume growth in FY25. Additionally, the new Xpeng brand under its umbrella is expected to help the group establish a stronger presence in the local EV market with the newly-launched Xpeng G7. While BAUTO benefits from MYR strengthening as it imports its CBU units in JPY, CBU units only make up roughly 15% of its total sales volume in Malaysia.

• Forecast. We cut FY25F-27F earnings by 1-2% as we cut our KIA volume forecasts while increasing Mazda volume estimates to better reflect its current sales performance.

• Our new MYR3.05 TP is based on a rolled forward 10x CY25F P/E, which is 1SD above its historical mean with a 4% ESG premium. The stock is currently trading at 8x CY25F EPS, below its 9x historical mean. We believe BAUTO deserves a higher PE considering its robust car sales due to consistent new model launches as well as attractive c.10% dividend yield.

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

Source: RHB Research - 12 Sep 2024