PETALING JAYA: Despite a projected normalisation of total industry volume (TIV) in Malaysia’s automotive industry, Bermaz Auto Bhd ’s (BAuto) future earnings are expected to remain solid.
CGS International Research (CGSI Research), which believes the market is overestimating the impact of lower 2025 and 2026 TIV on BAuto’s earnings potential, anticipates growth in BAuto’s Kia distributorship (acquired in 2021) and Mazda sales in the Philippines.
The research outfit expects this to support BAuto’s core net profit (CNP) for the financial years ending April 30, 2025 (FY25) and FY26, which they project to be 67% higher than the pre-pandemic levels, on average.
Meanwhile, CGSI Research believes that the TIV in Malaysia for 2024 will reflect the bringing forward of demand in 2025 and 2026.This expectation leads them to increase their FY24 CNP estimate by 5.4% while reducing their FY25 and FY26 CNP estimates by 12.9 and 17.7%, respectively.
“We believe cash handouts, Employees Provident Fund Account 3 and rising fresh graduate and civil servant salaries will be supportive of consumer spending in Malaysia and estimate TIVs will normalise at 650,000 per annum levels for 2025 and 2026,” it said.
CGSI Research highlighted that BAuto has underperformed compared to the broader FBM KLCI year-to-date, gaining about 3% versus the FBM KLCI’s 10.4%.
It said this has resulted in a forecasted FY25 price-to-book value of 3.44 times.
This valuation implies an FY25 return on equity (ROE) of 27.5%, which is 7.4 percentage points below CGSI Research’s estimate, or an FY25 core net profit (CNP) of RM222mil.
According to CGSI Research’s analysis, this projection indicates a potential 40% decrease in Mazda Malaysia’s unit sales, assuming sales of other brands remain constant. The research outfit finds this outlook unrealistic, given the country’s economic health and the positive indicators for consumer spending.
“Additionally, at current prices, BAuto offers an attractive 9% dividend yield (assuming 85% payout ratio), which we believe the market will re-rate towards 7% when it accepts that ROE in FY25 and FY26 are likely to stay at about 35%,” it explained.
The research house has reiterated its “add” recommendation on the stock, with a revised target price (TP) of RM3.10 per share, down from RM3.50 previously, due to a change in methodology used to determine the TP.