Snippets
Bauto registered increase of 24.1% in revenue
Focus Malaysia 13 Sep 2018 20:43
For the First Quarter Ended 31 July 2018

Bermaz Auto Berhad (“BAuto”) reported a significant increase in revenue to RM485.4 million from RM391.2 million in the preceding year’s corresponding quarter mainly due to the improvement of sales volume from the domestic operations as the change in the Goods and Services Tax (“GST”) from the standard rate of 6% to 0% in June this year has boosted customer demand, especially for the new CX-5 model. This was partly offset by a drop in sales volume from the Philippines operations subsequent to the implementation of the Tax Reform for Acceleration and Inclusion (“TRAIN”) law in January this year. The TRAIN law has caused an increase in excise tax and consequently car prices also increased, thus affecting the demand for motor vehicles in the Philippines.

The Group’s pre-tax profit increased substantially by 112.0% to RM67.2 million from RM31.7 million in the preceding year’s corresponding quarter largely due to higher revenue and improvement in gross profit margin from the domestic operations, and higher share of profit contribution from its associate company, Mazda Malaysia Sdn Bhd (“MMSB”). The improvement in gross profit margin was mainly due to favourable sales mix and a stronger Malaysian Ringgit against the Japanese Yen, while the higher share of profit contribution from MMSB was mainly due to the increase in production volume for the new CX-5 model to cater for both domestic and export markets. However, this was partly offset by a lower profit contribution from the Philippines operations, in line with the drop in sales volume mainly for Mazda2 and Mazda3 models, and the higher cost of sales due to the weakening of the Philippine Peso.

Dividend
The Board has recommended a first interim dividend of 2.50 sen single-tier dividend per share in respect of the financial year ending 30 April 2019 to be payable on 26 October 2018. The entitlement date has been fixed on 10 October 2018. The total dividend declared for the financial period ended 31 July 2018 amounted to 2.50 sen single-tier dividend per share (previous financial period ended 31 July 2017 : 1.50 sen single-tier dividend per share).

Future Prospects
Bank Negara Malaysia has revised its forecast for Malaysia’s 2018 Gross Domestic Product (“GDP”) from 5.5% - 6.0% to 5.0%. The economy is expected to remain on a steady growth supported by the private sector, despite the recent announcement of slower GDP for the second quarter of 2018 at 4.5% due to supply disruptions.

The automotive industry has recently benefitted from the change in the GST standard rate from 6% to 0% effective 1 June 2018 which boosted consumers’ buying sentiment and accelerated sales volume. Nevertheless, the surge in demand from June to August 2018 will be equalised in the long term as sales volume is expected to take a dip after the implementation of the Sales and Service Tax (“SST”) on 1 September 2018. The automotive segment market trading conditions is expected to remain challenging with the competitive trading environment, weakening of the Ringgit Malaysia and cautious consumer sentiment as a result of uncertainties in the local and global economy.

Total Industry Volume (“TIV”) for the passenger cars in Malaysia for the 7 months of calendar year 2018 was 7.7% higher year-on-year. Mazda’s sales volume has also improved with a growth of 43% compared to the same period last year. Despite higher TIV for the 7 months of the calendar year 2018, the Malaysian Automotive Association (“MAA”) has revised its original 2018 forecast from 590,000 units to 585,000 units taking into consideration the Malaysian economy, improved consumer sentiment after the announcement of the zero GST rate and introduction of fuel subsidies by the Pakatan Harapan Government post GE-14, the impact of the re-introduction of the SST and heightened trade tension between the USA and China which would affect sentiments on trade, investment and consumption.

With the implementation of SST on 1 September 2018, the Group is absorbing the SST for customers who have placed their bookings for Mazda cars prior to 1 September 2018, for which the delivery of the cars will take place after the said date. This is to build customer loyalty and is expected to increase costs and reduce the Group’s profitability in the coming quarter. The impact may be mitigated, however, through lower sales volatility after August this year with potentially higher sales volume, reduced marketing and advertising expenses as well as dealer incentives.

In the Philippines, although the economy is forecasted to remain vibrant with expected GDP growth of 6.7% for 2018 and 6.8% for 2019, the implementation of the TRAIN law effective January 2018 has resulted in the contraction of demand for most, if not all, auto brands and the Group’s Philippines operations is not spared. Bermaz Auto Philippines (“BAP”) seeks to preserve its sales volume through the growth in the number of dealerships from 18 at the beginning of the financial year 2018 to 21 dealerships expected at the end of the financial year 2019, as well as new model introductions which are expected to contribute to a reasonable growth rate.

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