Bermaz Auto Berhad (BAuto) reported a weak start to FY25 with a core net profit (CNP) of RM70 million, a decline of 31% year-on-year. Despite this, the results met expectations, achieving 20% and 23% of forecasts from Maybank and consensus, respectively. Analysts from various stock broking houses maintain a positive outlook on BAuto, with Maybank, MIDF, RHB, CGS International, and Kenanga all reiterating their BUY/ADD/MARKET PERFORM recommendations. Target prices are set at RM3.04, RM3.03, RM3.05, RM3.10, RM2.45 reflecting potential upside gains of approximately 28% amid expectations for stronger upcoming quarters.

BAuto's 1QFY25 CNP drop was attributed to a 23% fall in vehicle sales, notably impacted by the absence of backlog orders for Mazda models such as the Mazda 3 and CX3. Sales of the Kia Carnival also fell 59% year-on-year, largely due to the diesel subsidy rationalisation in June 2024. On the upside, profit contributions from associates, including Inokom and KMSB, increased by 25%, providing some relief to the overall decline. While the company's earnings were down 23% quarter-on-quarter, it managed to maintain its EBIT margin at 11.6%, despite challenges from the cessation of Peugeot operations in February 2024.

Looking ahead, BAuto is poised for a stronger second half of FY25, driven by the launch of new models, including the Kia Sportage, CX60, and XPeng G6. The company targets vehicle sales of approximately 23,000 units for FY25, with the majority of growth expected from the Kia brand. Despite competitive pressures in the mid-range vehicle market, particularly from Chinese manufacturers, BAuto is well-positioned with a strong balance sheet, boasting a net cash position of RM324.1 million.

Additionally, BAuto's acquisition of a 15% stake in EP Manufacturing Bhd (EPMB) for RM19.8 million could pave the way for future partnerships, particularly in automotive parts manufacturing. This strategic move is expected to support the company's ongoing expansion plans. BAuto's healthy financials and attractive dividend yield, projected at 9% for FY25, make it a solid dividend play, reinforcing analysts' confidence in its prospects.

Source: Maybank, MIDF, RHB, CGS, Kenanga
Title: Weak start but inline, Earnings Matched Expectations, No Surprises, Solid Dividend Play; Keep BUY, Proposed acquisition: 11.54% of EP Manufacturing, Intensified Competition