BAuto’s FY17 to fall short of expectations despite Mazda boost
KUALA LUMPUR: Bermaz Auto Bhd’s (BAuto) financial year 2017 (FY17) will likely fall short of analysts’ expectations in light of the current challenging operating environment.
TA Securities Holdings Bhd’s research arm (TA Securities) said BAuto’s FY17 sales volume is expected to fall short of its estimates significantly due to the current operating environment.
It explained that Mazda’s Malaysian total industry value (TIV) in the first nine months of FY17 (9MFY17) was lacklustre, registering only 8,440 units compared with 11,602 units in 9MFY16.
In addition, it pointed out that its sales volume in Philippines also suffered due to supply constraints from Mazda Japan.
“Weak sales volume was further exacerbated by BAuto’s policy to restrain from offering discounts. We believe this was to preserve the resale value of its cars.
“Therefore, BAuto prefers to give incentives to Mazda dealers to drive sales. In our opinion, this strategy is detrimental in the short-term as sales volume may be impacted immediately.
“This is given a subdued economy whereby consumers are price conscious, and hire purchase rejection rates are high,” it said.
However, in the long run, TA Securities believed Mazda would be able to preserve its brand equity and car value which is a positive factor for BAuto.
The research team also believed that earnings in FY18 and beyond would exhibit a dramatic turnaround. This would be underpinned by new model launches, the commencement of export activities, and the listing of its Philippines operations.
“We expect BAuto’s sales volume to recover significantly in FY18 to FY19,” it said.
“Management revealed that it will launch the all new Mazda CX-5 and the Mazda CX-9 CKD in 1HFY18. In FY19, an all-new Mazda 6 and Mazda CX-2 may be launched. This is an improvement from FY17 which saw facelifts and variants being launched instead of brand new models.
“Furthermore, management shared that interest has ignited for the new CX-5, particularly the new Soul Red Crystal paint version.”
It also believed that BAuto is poised to commence export activities after the recent completion of BAuto’s new painting line last year.
“BAuto via its associate company, Mazda Malaysia, will export the Mazda CX-5 to countries in the region. They may even reach South Africa and the Middle East beginning July 2017,” it added.
As for the proposed listing of BAuto’s Philippines’ operations, TA Securities noted that the proposed listing is on track and is expected to be completed in the fourth quarter of FY17 (4QFY17).
It added that the listing could only cause minimal earnings dilution of RM4 million to RM5 million.
“To recap, BAuto’s stake in Bermaz Auto Philippines (BAP) will reduce from 60.4 per cent to 52 per cent. Furthermore, we believe that a portion of BAP’s cash of circa RM100mn will be repatriated and paid out as a special dividend to BAuto shareholders.
“Additionally, the Philippines listing is expected to increase sales in the Philippines as BAuto sets up additional infrastructure, which include body repair workshop, warehouse, and possibly a new plant in the long run,” it said.