Near-term prospects still challenging for Bermaz Auto during MCO

KUCHING: Bermaz Auto Bhd’s (Bermaz Auto) near-term prospects remain challenging given the current uncertain macroeconomic environment and weaker consumer sentiments especially for big-ticket items such as automotive.

In a report, the research team at AmInvestment Bank Bhd (AmInvestment) maintained its view that the near-term macroeconomic environment will still be challenging for foreign and premium car brands – the space where Mazda operates in – as consumers will be more cautious with their discretionary spending.

It downgraded its call on the stock to ‘underweight’ from ‘hold’ as well as cut its forecast on the group given its weak nearterm prospects. We trim Bermaz Auto’s FY20 to FY21F core net profit forecasts by 17 and 31 per cent respectively after factoring in more conservative sales volume assumptions for the group’s domestic market.

“The earnings downgrade is to reflect the movement control order (MCO) extension to April 28, 2020 (phase three) and also a decreased appetite for premium big-ticket items post-MCO, given the economic uncertainties,” it explained.

On Bermaz Auto’s operations, following a conference call with the group, AmInvestment updated that the group plans to further utilise the group’s 29 per cent-owned Inokom plant.

“Bermaz Auto is currently in negotiation for a local assembly contract job with another brand to complement the group’s Mazda CKD projects.

“The group highlighted that it will not be involved in the distribution of this marque. However, it will carry out the assembling and manufacturing works. It hopes to secure the contract in two months and commence production in the next 12 months,” it said.

AmInvestment also noted that Bermaz Auto said it is not in a hurry to restart its Inokom production plant due to the Coronavirus Disease 2019 (Covid19) pandemic.

“It plans to wait until the number of daily new cases to taper to a pre-MCO low before resuming operations. The group also said that it has enough inventories to last for three to four months when it is able to reopen showrooms and restart the dealership business,” it added.

“The group also highlighted that the localization project of its third model is on track (after the CX-5 and CX-8) and is targeted to begin production in April to May 2021. We suspect that this third CKD model project will be the recently launched all-new CX-30.

“If successful, we believe that this will significantly reduce the pricing of the CX-30 due to the eligibility for EEV-customised incentives,” it said.

“BAuto also reiterated that the MX-30 compact crossover will also make its debut in Malaysia as a CBU at the end of 2020. The MX-30 and the CX-30 share many common parts and components. This will lead to the possibility of a fourth Mazda CKD model after the CX-30. The full impact of the MX-30 CKD on group earnings is likely to be only fully reflected from FY22F onwards,” AmInvestment noted.