Bermaz Q1 results below forecast, says CIMB Research

KUALA LUMPUR: Bermaz Auto Bhd’s results for the first quarter ended July 31, 2017 (1QFY4/18) were below expectations at 12%/11% of CIMB Equities Research/Bloomberg consensus' FY4/18F.
It said on Tuesday the weaker results were due to lower-than-expected margin from CX-5 run-out sales incentives. 

 Bermaz declared a lower first interim dividend per share of 1.5 sen whichs is half of the three sen a year ago.

CIMB Research said revenue fell 21% on-year to RM391mil in 1QFY4/18 due to lower sales volume in Malaysia   (-30%), particularly for the CX-5 run-out model and the ageing Mazda 3 model facing intense competition from its competitors' new models. 

“Overall, core net profit plunged 50% on-year to RM20.2mil in 1QFY4/18 due to margin compression in the domestic market as a result of the CX-5 run-out programme as more sales incentives were given for this model ahead of the upcoming launch of the new CX-5 model in October 2017,” it said.
It pointed out Mazda Malaysia Sdn Bhd's (MMSB) profit contribution declined on the back of lower sales volume and margin compression due to the phasing out of the current CX5 model. 

According to Malaysian Automotive Association (MAA), total production volume of Mazda’s 4x4 and sports utility vehicle (SUV) in Malaysia dropped 11% on-quarter to 1,881 units in 1QFY18. 
Total associate profit contribution plunged 88% from RM5.6mil in 4QFY17 to RM700,000 in 1QFY18.  

CIMB Research cut its FY18-20 EPS forecasts by% 3-8% to account for margin erosion due to intense competition and lower production volume. 

“Although sales volume fell 21% on-year in 1QFY4/18, we raise our FY18 volume growth forecast to 16% (vs. 20% previously) as we project a demand recovery in Malaysia in 2HFY4/18, to be driven by the all-new CX-5 and resilient demand growth for premium models such as CX-9 and MX-5 in the Philippines,” it said. 

The research house noted that Bermaz is on track to roll out the all-new CX-5 in October 2017. It expects the average selling price for the new CX-5 to be 5% higher than the current model. 
“Moreover, we learnt that the new CX-5 model would be a completely knocked down (CKD) version; this should help to boost its margin. 

“The new CX-5 will also drive higher profit contribution for its associate, which are responsible for exporting the model across the region. CX-5 is key driver for Bermaz, accounting for 35% of its average annual sales volume in FY15-17.  

“As we roll over our valuation basis to CY18F, our target price rises to RM2.30, still based on 13 times P/E (three-year historical mean). We reiterate our Add call.

“Successful new model launches, higher dividend payouts and potential listing of its Bermaz Auto Philippines are potential re-rating catalysts. Key risks to our Add call are delays in new model launches and persistent weakness in domestic consumer sentiment,” said CIMB Research.   
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