• Maintain BUY and MYR3.05 TP (49% upside), and c.11% FY25F (Apr) yield. While the Deepal EV distributorship will expand Bermaz Auto’s EV offerings, we do not think it will be a volume contributor to the group, and hence, the impact will be minimal. Regardless, we think Bermaz is undervalued, trading at 7.7x FY25F P/E, vs its historical mean of 9x. Bermaz also remains a solid dividend play with c.11% dividend yields.

• Deepal EV distributorship. Bermaz has been awarded the distributorship rights for Deepal EVs in Malaysia. The rights include distributorship, sales of spare parts, and the provision of after-sales services. Deepal is a Chinese EV brand, owned by Changan Automobile, a Chinese automotive manufacturer based in Chongqing, China. It manufactures, owns, and distributes brands such as Changan, Deepal, and Avatr. In YTD-Oct 2024, Deepal has sold 146.7k units in China (+44% YoY). Deepal has also expanded into markets outside China, such as Thailand, Nepal, Mexico, Australia, and Saudi Arabia.

• More EV offerings. We understand from management that Deepal is set to launch in 2HCY25, with two models to be introduced: The S07, a mid-sized EV SUV, as well as its recently launched compact EV SUV, S05. We believe the base model of S07 will be priced at MYR150k-200k, while the S05 will be priced lower. The distributorship requires minimal capex, which will mainly be spent on the showrooms, at c.MYR2m per showroom.

• Outlook. We think Deepal will not significantly contribute to Bermaz’s bottomline, as Malaysia’s EV market remains small (2% of total car sales). Note that Xpeng, another EV brand under Bermaz, has only managed to sell c.150 units since its debut in August. Also, we think CKD assembly for this brand is unlikely, as volumes will not be able to justify the localisation plan, while Changan is already constructing a plant in Thailand to cater for right- hand drive markets in Asia, and this is expected to be up and running in 2025.

• Forecasts. As this brand is unlikely to be a volume contributor for Bermaz, we make no changes to our earnings forecasts at this juncture. Our TP takes into account a 4% ESG premium, based on its ESG score of 3.2. We still like Bermaz, which is one of our Top Picks, for its undemanding valuations as well as handsome c.11% yield.

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

Source: RHB Securities Research - 26 Nov 2024