Bermaz Auto downgraded to ‘Sell’ on lower sales forecast for FY24

BERMAZ Auto Bhd’s counter has been downgraded to ‘Sell’ as its sales for the coming year is expected to be lower than its record levels chalked for this year.

Affin Hwang Investment Bank Bhd (AHIB) has downgraded the stock from an earlier ‘Hold’ call with a 52-week target price of RM1.83, down from RM2.09. The stock ended Friday’s trading at RM1.84.

In a report released today, it said Bermaz’s FY23E earnings is expected to be at record levels on strong sales volume driven during the tax exemption period.

Yet, it said FY24E sales are expected to be softer in the absence of government stimulus measures and as demand for car purchases weaken amid the stubborn inflationary pressures.

It noted that Mazda sales volume, based on Malaysian Automotive Association’s (MAA) recent release in March, shows that its 11MFY23 numbers have hit 13,9000 units, which has already surpassed its initial forecast on Mazda’s FY23E total numbers of 12,4000 units.

In the report, AHIB said it was positive on Bermaz’s strategy to tie up with a pure China electric vehicle (EV) player as their main EV line-up.

“Driven by a wide price range of China EV models, we think there is scope for [Bermaz Auto] to bring in affordable EV models that can cater to the low to mid-income group and more importantly become a volume driver for their EV segment.

“Besides, [Bermaz Auto] has introduced solid initiatives to strengthen their EV transition with investment worth RM3m, to date. Understandably, Mazda’s EV footprint is small while its roadmap is slow, which could adversely impact [Bermaz Auto]’s prospects as Mazda sales still accounts for 90% of revenue,” it said.

The report noted that after Bermaz Auto CEO visited an EV conference in China, he was keenly aware of the rapid EV growth in China with plenty of homegrown EV brands that have emerged and overtaken foreign players in EV sales volume for 2022 by more than 100% yoy growth.

“Currently, Bauto is engaging with several China EV players for EV distribution rights in Malaysia. We understand that Bauto has interest in bringing in a pure EV player like Xpeng, Dongfeng or Geely as their main EV line-up. Any successful tie up with the larger Chinese EV players would be a plus,” it said.

However, AHIB said it thinks that existing automotive players in the country may also be seeking such strategic plans and thus may be challenging, especially up against the bigger players with stronger financial position and distribution network.

“Nevertheless, given the breadth of Chinese EV brands, affordable EV brands like Hozon or Wuling can cater the low to mid-income group and most importantly become a volume driver for their EV segment could be an interesting proposition, in our view,” it said.

Bermaz Auto currently offers three EV models from each brand under their distribution line which are the Mazda MX-30, Kia EV6 and the upcoming Peugeot e2008 whereby prices currently range between RM199,000 to RM301,000. – TMR / pic TMR File