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Thursday, June 13, 2019

CIMB Research retains Add for Bermaz, higher target price

Thursday, 13 Jun 20198:24 AM MYT

KUALA LUMPUR: CIMB Equities Research is maintaining its Add recommendation for Bermaz Auto Bhd
with a higher target price of RM3.30 still based on 14 times CY20F P/E, in line with the target sector P/E.

It said on Thursday Bermaz is its top sector pick due to its robust growth prospects, driven by multiple new model launches, proxy to export growth and attractive 8.2% CY19F yield.
“Rising competition in the SUV segment, weaker earnings delivery and lower dividend payout are key downside risks to our call,” it said.

CIMB Research said revenue in 4QFY4/19 fell 31% on-quarter due to lower sales volume (-35% on-quarter) following record sales delivery in 2Q-3QFY19, driven by the tax holiday period in Malaysia, supply constraints and implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law in the Philippines.

In spite of the lower sales delivery, EBITDA margin expanded by 2.1% pts to 12.8% in 4QFY19, partly due to lower advertising and promotion (A&P) expenses and dealer incentives in light of lower sales.

Revenue in FY4/19 grew by 25% on-year due to stronger sales in Malaysia (+47%), in spite of weaker sales in the Philippines (-38%) due to the TRAIN law implemented in January 2018.

Bermaz also benefited from higher associates’ profit contribution from 30%-owned Mazda Malaysia Sdn Bhd (MMSB).

MMSB posted RM183m pretax profit in FY19 (vs. RM55m in FY18) driven by higher production volume for CX-5.

“Overall, Bermaz delivered a record breaking RM265.3m net profit in FY19 on the back of an impressive 90% yoy earnings growth, which trumped our and Bloomberg consensus expectations,” it said.

CIMB Research raised its FY20-21F EPS by 15%-17% to reflect higher margin expansion due to better cost control from lower advertising and promotion expense and stronger contribution from MMSB.

“We project MMSB to deliver sales volume of 25,000 units in FY20F and 30,000 in FY21F on the back of higher demand for SUV and potential new complete-knocked-down (CKD) localisation projects targeting Malaysian and export markets.

“We expect the group to deliver 5% volume growth in FY20F, driven by new model launches such as Mazda 3, CX-8, CX-30 and new facelift model for CX-5 that will include a 2L Turbo variant in Malaysia in 2HCY19. Moreover, the group is cautiously optimistic for higher sales delivery in the Philippines, driven by new models,” it said.


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