PETALING JAYA: Bermaz Auto Bhd, Malaysia’s sole distributor of Mazda vehicles, is expected to stage a strong recovery in earnings for the financial year ending April 30,2021 (FY21), boosted by improving sales and margins, and helped by a low-base effect.
The optimistic outlook is shared by several brokerages despite Bermaz’s guidance for a challenging operating environment in FY21, following a washout year in FY20.
According to analysts, Bermaz could see improving sales in FY21, thanks to the recently announced sales tax exemption of up to 100% for completely knocked-down (CKD) and 50% for completely built-up (CBU) models from June 15 to Dec 31.
CGC-CIMB Equities Research, for one, pointed out that Bermaz stands to benefit from the sales tax exemption due to a higher amount of savings for consumers and favourable sales mix, given that 76% of its sales volume in Malaysia is derived from CKD models.
“Our channel checks indicate that Bermaz has seen a pick-up in order bookings since the sales tax announcement, with nearly 400 bookings since June 6. In addition, Bermaz should benefit from the potential surge in demand, given its higher inventory level, which stands between four and five months, nearly double its historical mean of two to 2.5 months, ” the brokerage said in a recent note.
CGS-CIMB Research said the sales tax exemption would reduce the average selling prices for Mazda cars by 4%-5%.
The brokerage said it expects Bermaz to post a stronger earnings recovery in FY21, driven by the sales tax exemption that could boost sales, and higher margin delivery from a better sales mix and incentives for its locally-assembled models, CX-5 and CX-8, under the industrial linkage programme.
Overall, it has projected a 22% year-on-year (y-o-y) sales volume growth to 14,250 units for FY21.
CGS-CIMB Research has maintained its “add” recommendation on Bermaz, with an unchanged target price of RM2 based on 14 times forward price-earnings (PE).
Similarly, MIDF Research said it expects Bermaz’s earnings in FY21 to recover 85% y-o-y off a weak base.
The brokerage’s projection was based on the assumptions of no further lockdowns; the absence of price approval issues as experienced in the three months to January 2020; and gradually improving sales boosted by the automotive tax-holiday. It has also assumed a sales volume of 12,700 units for FY21.
“Post the tax-holiday announcement, daily bookings have risen significantly to around 60 per day vis-a-vis 20-25 per day post-movement control order (MCO). It is too early to determine if this is sustainable, but (it is) definitely a good early indication” MIDF Research said in its report.
The brokerage has maintained its “buy” call on Bermaz, with an unchanged target price of RM1.95.
AllianceDBS Research has also reiterated its “buy” call, with an unchanged lower target price of RM1.80, pegged at 12 times PE.
The brokerage argued that Bermaz’s valuation remained attractive at 11 times PE currently.
“We believe that Bermaz is in a sweet spot to benefit. This is due to its strong exposure to the SUV segment which remains a favourite among Malaysian consumers, ” AllianceDBS said.
From FY20’s low base, AllianceDBS said it expects Bermaz’s Malaysia sales volume to rebound strongly in FY21 with a 15% y-o-y growth – largely driven by its SUV models, particularly the CX-5 and CX8, which are both locally assembled.
“Coupled with the tax incentives, margin should improve with higher CKD sales... Bermaz also has a better footing compared to its peers due to relatively low fixed costs – thanks to its asset-light business model, ” the brokerage explained.
Meanwhile, UOB Kay Hian has maintained its “hold” call on Bermaz, with an unchanged target price of RM1.50, based on 11 times FY21 PE.
“We expect earnings growth momentum could resume in the second half of FY21 with the localisation programme as the key earnings catalyst, ” the brokerage said.
It noted that while the sales tax exemption would lead to potential front-loading of purchases into 2020, its channel checks suggested the actual cost savings after waiving the sales tax would be about 3%-5%, lower than the 4%-7% during the zero-rated goods and services tax (GST) period.
“This leads us to believe that car sales might not be as robust compared with the previous zero-rated GST period, with the additional dampener being the frail economic outlook induced by the current Covid-19 outbreak, whereby consumers tend to hold back on discretionary spending in times of uncertainty, ” UOB Kay Hian said.
For FY20, Bermaz’s net profit was down by nearly 62% y-o-y to RM100.51mil, largely due to weaker revenue, which fell 30.2% y-o-y to RM1.76bil. The weaker revenue was largely due to lower sales volume from both its domestic and Philippine operations.
Bermaz’s shares were last traded at RM1.57, down five sen last Friday.
The counter had risen 65% from its mid-March low of 95 sen, but year to date, the stock was still down 25%.
