MIDF Research is maintaining its buy call on Bermaz Auto Bhd (BAuto) despite the auto group recently running into a snag in delivering its new Mazda models.
The group had a weak performance for the second quarter ended Oct 31, 2019, registering a net profit of RM20.38 mil from RM73.91 mil for the same period last year.
But MIDF Research analyst Hafriz Hezry believes BAuto’s earnings should rebound in the next quarter.
“We trim our TP slightly to RM2.70/share (from RM2.85/share previously) though our buy call on BAuto remains intact. From a valuation standpoint, BAuto is cheap at just 10x FY21F earnings while dividend yield of 8% is attractive. Net cash accounts for 12% of market cap (FY21F),” he said in a Dec 16 note.
Among the reasons for the earnings drop were delays in the new facelift CX-5 and new CX-8 models which were launched at the end of September and the beginning of October respectively.
According to BAuto, in a Dec 10 bourse filing, “pricing issues” led to no sales of CX-8 vehicles during the quarter under review.
Hafriz said a stricter approval process for pricing delayed delivery of the new CX models. This was compounded by BAuto submitting two models for approval at the same time, as well as the extended negotiations on the tax incentives for the two models.
But the pricing problems have been fully resolved, with the incentives “slightly better for the facelift Mazda CX5, compared to the outgoing model,” while the Mazda CX8 saw a larger incentive package than the CX5, added Hafriz.
“We would expect to see the volume recovery from 3QFY20 to be accompanied by a margin recovery. This should be further underpinned by an upward revision to the pricing of CX5 vehicles by RM2,100 to RM2,700 per unit from January 2020,” said Hafriz.
Also BAuto’s balance sheet remains “underutilised” despite its attractive dividend payouts. Hafriz expects BAuto to be in a solid net cash position despite a forecast dividend payout of more than 100% for FY20.
This war chest, coupled with the group’s plans to double its capacity at Inokom Corporation Sdn Bhd’s plant from 40,000 units per annum to 80,000, places the group in a good position to undertake brand expansion, particularly in the mass market segment, he added.
BAuto’s shares closed up one sen to RM2.07 at noon with 439,000 shares changing hands.
