Bermaz Auto Bhd (BAuto) looks set to recover in the coming quarters following the announcement of the tax holiday which comes as part of the National Economic Recovery Plan (Penjana).
“We believe that BAuto 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,” said AllianceDBS Research, noting that demand for BAuto’s new Mazda CKD models is expected to gradually pick up following a strong start early in 2020, prior to the movement control order (MCO) in March.
“From FY20’s low base, we expect BAuto’s Malaysia sales volume to rebound strongly in FY21 with a 15% yoy growth, largely driven by its SUV models, particularly the CX-5 and CX-8 which are both locally assembled,” added the research house.
RHB Investment Bank agreed that the auto player should see recovery in FY21, as the government’s proposal to exempt car buyers from paying sales tax on passenger cars “should help to stimulate near-term demand and contribute to improvement of sales in FY21.”
Still, TA Securities noted that BAuto management expects FY21 to remain challenging, but the research house agrees that the sales tax exemption will serve as a catalyst to drive market demand.
While Affin Hwang Capital, TA Securities and RHB Investment Bank noted that the posted results for the auto player’s 2020 financial year were below their expectations, the results actually came in line with AmInvestment Bank’s expectations, and were better than expected for MIDF Research and AllianceDBS Research.
“The temporary closure of businesses amid the Covid-19 pandemic in 4QFY20 as well as the delay in car pricing approvals in 2Q-3QFY20 were the culprits for the lacklustre FY20 performance. Moving ahead, we believe the worst is over for BAuto, considering the lockdown easing and cheaper car prices on tax incentives which should lift Mazda car sales volume moving forward,” said Affin Hwang Capital.
AmInvestment Research agreed with the reasoning for the lower numbers reports, and also noted that BAuto is coming from a high base, having benefited from a tax holiday in FY19, which had boosted sales volume throughout the period.
MIDF Research noted that BAuto actually “squeezed out a small profit in a very tough quarter,” noting that the auto company will be shifting into a recovery year after the washout that is FY20.
“We expect FY21F earnings to recover 85% yoy off the weak base, assuming no further lockdowns, absence of the price approval issues experienced in 3QFY20, and gradually improving sales boosted by the automotive tax-holiday,” said MIDF Research.
RHB Investment Bank also likes the stock, noting it as “a good option for investors looking to have exposure in the cyclical business to ride on the economic recovery,” adding that, compared to its peers, BAuto has a good track record of consistent new model launches.
All of the research houses maintained a buy call on BAuto, with AllianceDBS Research, Affin Hwang Capital, RHB Investment Bank, and MIDF Research maintaining their target prices of RM1.80, RM2.38, RM1.80, and RM1.95 respectively. AmInvestment Research also maintained a fair value of RM1.79 for the stock. TA Securities, however, tweaked their target price down to RM1.77 from a previous RM1.80.
At the end of the trading day, BAuto’s shares were last done at RM1.57, down 5 sen, with 9.79 million shares traded. – June 12, 2020
