Further upside for Bermaz

KUALA LUMPUR: There could be further upside for Bermaz Auto Bhd ahead of its fourth financial quarter results on the back of its Kia distributor ship win and consolidation of Berjaya Auto Alliance Sdn Bhd (BAASB) earnings.

On the heels of its partnership agreement to make and distribute Kia vehicles in Malaysia, Bermaz Auto has acquired an additional 35% stake in BAASB, which gives it a controlling 55% stake in the Peugeot distributor.

This comes on the back of Berjaya Corp's divestment of its entire 51% stake in BAASB to existing shareholders to streamline its business under a new leadership.

With majority ownership of BAASB, Bermaz now controls local distributorship of three auto brands, namely Mazda, Kia and Peugeot.

According to MIDF Research, the 35% stake acquisition was a fair deal based on BAASB's net asset value of RM13mil as of April 2021.

The deal represents 5x BAASB's estimated FY22 earnings of RM2.5mil, which is a reasonably undemanding valuation from a price-earnings perspective relative to Bermaz's 12x FY22 price-earnings.

"As Bermaz played a lead role in BAASB’s operations even at its previous 20% stake, Berjaya’s exit should have minimal impact on our earnings expectation for BAASB (i.e. 1%-2% incremental earnings for Bermaz over next 1-2 years).

"BAASB is involved in the asset-light distribution business (with zero exposure to capex-heavy assembly of Peugeot models which is undertaken by Stellantis at its plant in Gurun), hence our projection of a maiden profit within its 1st year of operations remain intact," said MIDF.

BAASB made a small profit of RM200,000 over the first two months of operations and the research house expects profit to expand meaningfully over the coming quarters as it addresses legacy issues plaguing the Peugeot brand in Malaysia.

There are new launches in the pipeline with the second generation Peugeot 2008 model scheduled for rollout this year.

"Maintain BUY at unchanged TP of RM1.70, which pegs Bermaz to 16x CY21F earnings, at 1SD above historical mean given brand expansion-driven growth and a cyclical recovery in the auto sector," said MIDF
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