Review

• Bermaz Auto Bhd (BAuto) post a weaker 1QFY25 results, which came in within expectation. The core net profit decreased 32.7% YoY to RM68.2mn in tandem with a 22.3% drop in revenue.

• The decline was predominantly attributed to reduced sales volume due to stiff competition from other marque distributors.

• 1QFY25 sales volume decreased by 23.0% YoY to 5,117 units (Malaysia: 4,555 units and Philippines: 562 units). Notably, the combined sales volume of CX-30 and CX5 CKD models accounted for approximately 74% of the total domestic sales volume in Malaysia.

• The board declared a first interim dividend of 3.5 sen/share for the quarter under review (vs. 1QFY24: 5.0 sen/share).

Impact

• No change to our earnings forecasts.

Outlook

• Management anticipates FY25 will be challenging due to various global and local economic factors. Besides, the automotive sector is under pressure due to rising competition from Chinese-made vehicles.

• Meanwhile, BAuto's subsidiary, Bermaz Capital Sdn Bhd, has agreed to subscribe to 33mn new ordinary shares of EP Manufacturing Bhd (15% of EPM's issued capital) for RM19.8mn, or RM0.60/share. Post acquisition, BAuto will hold a 11.54% equity stake and making it the 2nd largest shareholder in EPM.

• The EPM is principally involved in the manufacturing and supply of metal body panels, chassis parts and modular assembly of automotive parts and components to original equipment manufacturers. Its customer base includes, among others, Mazda, Perodua, Proton and Honda.

• Funding is not an issue as the group had RM525mn in cash as of July 31. With EPM’s annualised profit of RM14.9mn, the acquisition is expected to raise BAuto’s FY26 earnings by less than 1%, after netting out interest savings.

• We believe the acquisition would provide long-term growth potential as EPMB plans to allocate RM100mn for development of a manufacturing hub for ICE and EVs at Hicom Pegoh Industrial Park, following two vehicle assembly agreements secured this year.

Valuation

• We downgrade BAuto to HOLD from Buy, with a revised target price of RM2.47 (previously RM2.74). This adjustment reflects a reduction in PER by 1x multiple to 9x CY25 EPS, to account for expected weaker earnings and potential challenges and uncertainties affecting future performance.

Source: TA Research - 12 Sept 2024