Bermaz Auto’s FY17 result garners mixed views

KUALA LUMPUR: Despite Bermaz Auto Bhd’s (Bermaz Auto) financial year 2017 (FY17) result garnering mixed views, analysts are reiterating that FY18 will likely see an improvement.

In a press release, Bermaz Auto announced that the group registered lower pre-tax profit of RM176.6 million as compared to the pre-tax profit of RM278.3 million in the previous financial year.

Bermaz Auto’s FY17 earnings RM119 million accounted for 100 per cent of the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) forecast but was slightly below consensus at 93 per cent.

On the other hand, the group’s FY17 core net profit of RM116 million was seven per cent below AmInvestment Bank Bhd’s (AmInvestment Bank) estimate and 10 per cent below consensus.

The research firm noted that the result, a 40 per cent decline year on year (y-o-y), was due to weakness in Malaysia where Mazda sales fell 35 per cent y-o-y and the group’s operating margin declined four percentage points (ppts) to nine per cent.

For FY17F, dividends stood at 11.6sen, 16 per cent higher than MIDF Research’s earlier forecast of 10sen per share.

“Absolute dividends were lower year-on-year due to lower profit but this was expected,” the research arm said.

“More importantly, the dividends entailed higher 113 per cent payout (versus 97 per cent payout last year) and an attractive yield of 5.8 per cent.”

On a positive note, MIDF Research highlighted that the fourth quarter of FY17 (4QFY17) saw improved volumes for Malaysian Mazda sales, 30 per cent-owned MMSB (Mazda assembly) and 29 per cent-owned Inokom (contract assembly of various marques including Mazda).

“This came ahead of the Mazda 3 facelift in late April which also came with launch of G-Vectoring Control (GVC) variants for the Mazda 3 and CX3.

“The big volume and margin kicker will come after launch of the new CX5 (in September 2017) and CX9 (in July 2017),” the research arm said.

It added that the stronger underlying margins coupled with a stronger ringgit and improved volumes should drive a gap-up in earnings in FY18F.

Meanwhile, AmInvestment Bank reiterated that FY18 will likely see an improvement on better sales, counting on the new CX-5 CKD (September), CX-9 facelift (July) and the various models that came in April (MX-5 RF, M3, M6, CX-3).

Other factors include margin recovery following the recent price revision and the introduction of new models at a price premium.

Additionally, improvement is expected from a rise in associate earnings, following the ramp-up in production and the addition of CX-5 exports to Southeast Asia (excluding Vietnam) from August this year.

All in, AmInvestment maintained ‘buy’ on Bermaz Auto with a fair value of RM2.30 per share. MIDF Research also reaffirmed ‘buy’ at a target price of RM2.50 per share.