New Mazda CX-5 expected to boost Bermaz FY18 earnings

KUALA LUMPUR: RHB Investment Research is upgrading Bermaz Auto to Buy with a new target price of RM2.30, which represents a 20% upside. 

According to a research report released on Monday, RHB Investment Research believes Bermaz's Q1 FY18 results will be unspectacular, given the subdued sales volumes for the quarter and earnings having reached a trough. However, it also notes that there will be excitement over the Mazda CX-5 SUV, expected to be launched in September.

The CX-5 is the top-selling Mazda model in Malaysia, with sales of 5,594 and 4,547 units in FY16 and FY17 respectively. The new model has been well received in other markets where it has been launched. RHB Investment Research expects the CX-5 to be made immediately available in a CKD form at launch and boost Q2FY18 earnings.

"FY18F earnings are on track to rebound on the back of the all new CX-5. Bermaz Auto (Bermaz)
trades at an undemanding 2018F P/E of 11.8x, well below the three-year average of 12.3x. Bermaz offers a base-case dividend yield of 5.8% that could be further enhanced by an additional MYR0.02 upon the completion of the Philippines IPO," it said.

"Mazda Malaysia would expand the exports of the new CX-5 from the recently upgraded Inokom assembly plant and would now tap other markets in Asean (except Vietnam and Singapore). It previously only exported the current CX-5 to Thailand. 

"Management is guiding for export sales of 17,000 and 25,000 units in FY18F and FY19F respectively. Bermaz would benefit from higher associate earnings at the 30%-owned Mazda Malaysia and the 29%-owned Inokom."

RHB Investment Research adds that Bermaz Auto Philippines is also expected to complete its listing by April 2018, and based on current proposals, the IPO proceeds will be repatriated and distributed for an additional two sen dividend per share.

"Key downside risks include a weaker MYR and a delay in new model launches. We lift our FY18 earnings estimate by 11.4% after raising our volume forecasts higher for both domestic and export sales. FY19-20 forecasts are broadly unchanged."
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