BAuto facing strong headwinds

PETALING JAYA: Heightened competition has softened the outlook at Bermaz Auto Bhd (BAuto), one of the more prominent non-national car distributors and assemblers in the country.

Investors have progressively priced these subdued expectations into BAuto’s stock since late last year, which declined 45.9% over the last 12 months.

Competition is strong in the RM130,000 to RM200,000 price range for cars, the segment BAuto operates in.

Increased competition in recent times from Chinese players is not only from the electric vehicle (EV) segment but also internal combustion engine segment.

BAuto is a dealer of Mazda, Kia and Xpeng in Malaysia, and it also distributes Mazda in the Philippines.

In Malaysia, it assembles Mazda and Kia through three companies: its Mazda Malaysia Sdn Bhd (30%-owned), Kia Malaysia Sdn Bhd (33.33%) and Inokom Corp Sdn Bhd (29%).

The competition appears to be eating away at BAuto’s market share, according to the Malaysian Automotive Association’s (MAA) data for 2024.

Kia, which last reported it sold 311 vehicles in the country in 2022, stopped reporting its sales figures to the MAA in 2023.

Mazda’s total sales declined 24% year-on-year (y-o-y) in 2024, while its market share dropped to 1.8% from 2.4% in 2023.

Instead, competitor Chery, which also houses the Jaecoo brand, saw strong gains with its market share for 2024 rising to 2.4% from 0.6% in 2023.

Newer car brands often seem to hog the limelight, frequently incorporating fashionable smart technology into their vehicles.

However, insiders say long-term after-sales service will be the key area where automotive players will be judged by customers who also frequently think about resale values.

BAuto now trades at a mere five times historical price earnings (PE) multiple, and based on historical payouts, the stock has an indicative gross dividend yield of some 13%, going by Bloomberg data.

It is not known if such a return can be achieved considering the declining earnings.

For its second quarter ended Dec 31, 2024 (2Q25), BAuto’s net profits more than halved to RM40.35mil from a year before, while revenue fell 36%.

The group, in the notes to its financial statements, attributes the decline to the competitive landscape.

Nevertheless, there are eight analysts with a “buy” call on BAuto’s shares, although there are six giving it a “hold: and one calling it a “sell”, according to Bloomberg. The consensus 12-month target price is RM1.91.

One substantial shareholder, the Employees Provident Fund, has been acquiring more of BAuto’s shares since mid-December 2024.

TA Research’s auto analyst Angeline Chin believes investors are currently too negative on BAuto’s outlook.

“China-based brands, particularly Jaecoo, continue to disrupt the market, directly competing with BAuto’s top-selling models like the CX-5 and CX-8. I anticipate a 30% drop in sales volume in the Malaysian market, not just because of the competition, but also due to the industry normalising after two years of high volume,” Chin tells StarBiz 7.

“Despite the decline in sales, I believe BAuto will remain profitable, with no earnings surprises expected in the next few quarters,” she adds.

On whether a high dividend yield can be sustained moving forward, Chin says it is less probable now.

“Regarding dividends, the group’s policy is to pay out 40% of net profits. Historically, dividend payouts have ranged from 60% to 85% (of net profits) and in some years, they even exceeded 100%.

“The company maintains a monthly working capital of RM7mil–RM10mil and annual capital expenditure of RM20mil,” she says.

“With a cash pile of RM458mil and a net cash position of RM184mil, I do not foresee any issues with dividend payments. However, it is expected to be lower than last year due to the anticipated decline in profit,” Chin adds.

She maintains a “buy” call on BAuto with a target price (TP) of RM2.05 per share.

UOB Kay Hian (UOBKH) Research said in early February that the competitive market has caused BAuto’s share price to fall steeply.

These factors include Mazda’s sales volume and an anticipated weaker 3Q25 for the financial year 2025 (FY25) earnings.

“We have revised our FY25-FY27 forecasts, trimming them by 10%, 32%, and 30% respectively, factoring in lower vehicle sales from its key brands due to intensified market competition, especially in the Malaysian market,” it says.

It also believes BAuto’s current forward PE valuations of around 7.8 times FY25 are considered fair due to the challenging market environment.

UOBKH Research has a “hold” call on BAuto with a lower TP of RM1.42 a share from RM2.10 previously, noting its attractive dividend yield of more than 10% at present.

Price competition is a concern, as CGS International notes new competitors have more attractive prices as well.

“The Mazda CX-5, the brand’s best-selling model in Malaysia, is sold for RM145,000-RM195,000, which is slightly above many of the new entrants’ top-selling models. We believe Mazda’s car sales will continue to face competitive challenges in the near term,” the research house says.

With Malaysia having partially opened certain segments of its car market, it appears that incumbents such as BAuto may be feeling the heat due to the changing market dynamics.

Refining its strategies to compete more effectively with the new brand entrants may help bolster its longer-term outlook.