Bermaz Auto to see record earnings for 2QFY19
KOTA KINABALU: Bermaz Auto Bhd (Bermaz Auto) will likely report record earnings for the second quarter of the financial year 2019 (2QFY19), driven by massive backlog orders and lower than expected sales and services tax (SST) compensation, analysts say.
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) in a recent report, highlighted that Bermaz Auto has a massive backlog of orders at more than 8,000 units, with over 6,000 comprising of the CX5.
“This is against pre-tax-holiday monthly total industry volume (TIV) of just 1,000 to 1,300 and a normal production rate of just 1,500 per month.
“We expect revenues to recover strongly next quarter. Even postSST in September, there were still around 130 unit bookings for the CX5,” the research team opined.
Being the sole distributor for Mazda cars in Malaysia, MIDF Research initially expected Bermaz Auto to increase its car prices by one to three per cent following the implementation of the SST.
“However, there is a change in the way the SST 2.0 is calculated - SST calculation now exempts localised components, essentially reducing the amount chargeable by the 10 per cent SST – this is similar to the excise duty mechanism which rewards localisation.
“Unlike completely knocked down (CKD), completely built up (CBU) prices are still raised by one to three per cent post-SST 2.0 as the full amount of docket price, import duty and excise duty are chargeable by a 10 per cent SST,” it said.
As such, it pointed out that given the lower than earlier anticipated SST cost, implications from subsidising SST for bookings pre-September 1 are also toned down.
“Bermaz Auto has around 8,000 pre-September bookings to compensate, of which circa 6,000 comprise of the CX5 (CKD).
“Given the new mechanism, SST cost (for the CX5) is estimated to reduce from RM5,700 per car (under GST) to RM3,800 per car (under SST 2.0), or a reduction of 2.8 per cent against the CX5’s average price.
“Cost to compensate for SST (for the CX5) is expected to reduce from an earlier estimated RM34 million to just RM22 million. Earlier plan was to claw back margins by lowering dealer incentives as well as lower A&P and marketing expenses.
“However, since the cost for SST compensation is lower now, and given the cost saving initiatives are still intact, margins next quarter may even remain intact, we think,” MIDF Research explained.
All in, the research team reaffirmed its ‘buy’ call on the stock. It said: “Bermaz Auto is an entrepreneur driven, highly cash generative assetlight business while the capexintensive manufacturing unit is parked under 30 per cent-owned MMSB and is kept off-balance sheet. MMSB itself is already self-funding.
“Manufacturing capex has peaked having built up production capacity to 34,000 units per annum (on two-shift) – FY19F-20F is mostly about monetising this incremental capacity via new models which are the CX5 and CX8 and export expansion to Southeast Asia exVietnam.”