CIMB Research expects Mazda Malaysia, which is 30%-owned by Bermaz, to record stronger earnings growth from FY18 onwards.
KUALA LUMPUR: CIMB Equities Research is retaining its Add call for Bermaz Auto Bhd
but with a lower RM2.20 target price compared with the earlier RM2.48 after the release of its earnings for the third quarter ended Jan 31, 2016.
The research house said on Wednesday the lower target price was based on 12.5 times CY18 forward price-to-earnings (PE) (three-year historical mean).
“Successful new model launches, higher dividend payouts and listing of Bermaz Auto Philippines are rerating catalysts. Key risks to our call are delays in BAP’s IPO, further strengthening of the yen vs ringgit, and persistent weakness in consumer sentiment,” it said.
CIMB Research said revenue in 9MFY4/17 fell by 17% on-year due to lower sales volumes in both the Malaysia and Philippine markets, which dropped by 27% and 12%, respectively.
Bermaz’s management attributed the lower sales volume to softer consumer demand in Malaysia, and intense competition and supply constraints for certain models in the Philippines.
“Overall, core net profit in 9MFY17 dropped 33% to RM99.8mil, from RM149mil a year ago, partly due to margin compression from currency weakness,” it said.
The research house said Bermaz’s 3QFY4/17 revenue dropped by 28% on-quarter and 35% on-year on the back of lower sales volume across the board. In spite of the lower sales, group EBITDA margin improved by 2.5 percentage points on-quarter and 2.2 percentage points on-year due to cost-saving initiatives.
For example, Bermaz decided to lower sales volumes of its entry model vehicles, such as Mazda 2, which had become loss-making after the yen strengthened against the RM. The sales reduction in these loss-making models helped to offset the earnings weakness.
Bermaz has received shareholders’ approval during its recent EGM to proceed with the listing of its BAP subsidiary in 2Q2017. It plans to sell 32.57 million of its shares in Bermaz Auto Philippines, which will reduce its stake from 60.4% to 52% post-listing.
The net proceeds are expected to be utilised for the construction of a new operational and training facility in the Philippines. We think the listing exercise will unlock the value in Bermaz Auto Philippines.
“We cut our FY17-19F EPS forecasts by 11-15% to account for lower volume growth in FY17F given persistently weak consumer sentiment and stronger yen vs. ringgit. We now project a 16% volume drop for FY17F (vs. 5% growth previously) and 10% volume growth in FY18F on new model launches.
“Nonetheless, we are still optimistic of stronger earnings growth in FY18F and beyond, with the introduction of new models like the new CX-5 and CX-9 CKD units, and stronger contributions from the Philippines operations.
“Despite the lower earnings recorded in 9MFY4/17F, the company raised its dividend payout to 98% compared to 53% in 9MFY4/16. Bermaz declared its third interim dividend of 2.75 sen in 3QFY4/17, raising the total dividend declared to 8.5 sen in 9MFY4/17, up 23% on-year. The stock offers attractive FY17F/18F yields of 6.9%/7.4%,” it said.
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