Review

• Bermaz Auto Bhd (BAuto) posted another poor performance for 2QFY25, which came in below expectations. Core net profit plummeted by 52.9% YoY to RM41.9mn driven by 35.8% decline in revenue. The weaker-thanexpected results were primarily attributed to reduced sales volumes for both Mazda and Kia brands due to intense competition in the automotive market.

• Cumulatively, 1HFY25 core net profit declined by 42.1% YoY to RM110.1mn, representing only 35% and 37% of ours and consensus fullyear projections. Revenue fell by 28.8% YoY to RM1.5bn.

• 1HFY25 sales volume decreased by 30.4% YoY to 8,932 units (Malaysia: 7,909 units, Philippines: 1,025 units). The CX-5 and CX-30 CKD models remained the top sellers, accounting for approximately 75% of total sales in Mazda's domestic operations. Additionally, this quarter marked the maiden contribution of the Xpeng G6 model (launched in August), which added 156 units to the total sales volume.

• The board has declared a special dividend of 7.0sen/share and a second interim dividend of 3.0sen/share for the quarter under review (vs. 2QFY23: 5.0sen/share). This will bring the 1HFY25 DPS to 13.5sen (vs. 1HFY24: 10.0 sen)

Impact

• We have adjusted our earnings forecasts for FY25 and FY26 downward by 17.8% and 16.8%, respectively. This revision reflects the weaker-thananticipated 2QFY25 performance, coupled with more conservative assumptions for future sales volumes after account for the ongoing challenges in the competitive automotive market.

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, which are competitively priced with advanced connectivity features.

• Meanwhile, the group has completed the subscription of 11.54% equity stake of EP Manufacturing Bhd (EPM) for RM19.8mn (or RM0.60/share) and is now the 2nd largest shareholder in EPM.

• As previously stated, the associate earnings from EPM are expected to remain negligible, contributing less than 1% to BAuto’s earnings.

• Meanwhile, BAuto has secured the distributorship, sales of spare parts, and aftersales services for the Deepal brand EV in Malaysia. Two models, the S05 (compact SUV) and S07 (mid-size SUV), are slated for launch in the Malaysian market by 2H 2025, broadening the group’s product portfolio.

• However, we do not expect significant contributions from Deepal in the near term as the EV market segment is spoiled for choice with new models such as Tesla Model Y, Proton e.MAS, and Perodua e-MO series.

Valuation

• Maintain HOLD on BAuto with a revised target price of RM2.05/share (previously RM2.47/share), based on CY25 PER of 9x, including a 3% ESG premium.

Source: TA Research - 13 Dec 2024