KUCHING: Bermaz Auto Bhd’s (Bermaz Auto) financial year 2018 forecast (FY18F) forecast has been trimmed by analysts but they have maintained their FY19F earnings for the group.
Based on the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) chat with management last Friday, Bermaz Auto is keeping the group’s 12,500 domestic volume target for FY18F, which means 60 per cent of FY18F total industry volume (TIV) is expected to come in the second half of 2018 (2H18).
On factors which will drive the earnings gap-up in the third quarter (3Q), MIDF Research estimated RM5.5 million spent in additional dealer incentives for runout of the old CX5 in 2Q of 2018 (2Q18) – this should reduce significantly in 3Q18 as there is only 200 units left to clear.
The research arm also noted that the ringgit gapped up to RM3.62 per 100 yen now from an average of RM3.83 in 2Q18, which will result in an estimated RM10 million per quarter incremental earnings.
Meanwhile, MIDF Research pointed out that the full quarter contribution of the new CX5 versus only one month contribution (860 units) in 2Q18 will drive the earnings gap-up in 3Q.
Re-acceleration at manufacturing units — captured at associate line — from launch of the new CX5 and commencement of exports to Indonesia, Philippines, Cambodia and Thailand will also drive the gap-up.
“Production rate has now more than tripled to 2,000 units per month versus just 600 units per month in 1H18,” it said.
Having said that however, MIDF Research was enticed to trim its FY18F by 12 per cent to factor in the larger than expected cost for runout of the old CX5 in 1H18 (which is a temporary and a one-off event) and as the research arm fine-tuned its TIV forecast closer to management’s guidance.
The research arm’s FY19F earnings however remained intact and earnings adjustment did not de-rail its investment case for significant improvement in earnings at Bermaz Auto over the next two years.
“From a valuation standpoint, Bermaz Auto is cheap at just 11-fold current year 2018 forecast (CY18F) earnings, relative to historical sector price earnings (PE) of approximately 12-fold, while dividend yield of five per cent is attractive,” it said.
“Given a solid 41 per cent earnings compound annual growth rate (CAGR) over the next two years, solid dividend yields and value unlocking from the listing of Bermaz Auto Philippines (BAP), Bermaz Auto should in fact trade at a premium to the sector.”
As such, MIDF Research’s target price was revised marginally to RM2.50 per share, from RM2.55 per share previously, given the FY18F earnings tweak but the research arm’s ‘buy’ call was re-affirmed.