Bermaz Auto (BAUTO MK)

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Bermaz Auto (BAUTO MK — US$186 million) is the former auto distribution arm of Malaysia’s Berjaya Corporation.

It has been listed on Bursa Malaysia since 2013 and has since expanded from a Mazda-focused dealer to also sell Kia, XPeng, and Deepal.

The competition within Malaysia’s auto industry has historically been favorable, thanks to a set of regulations. For example, imported vehicles are subject to a 30% duty, thereby protecting locally assembled cars, such as those made by Mazda and Kia.

For Bermaz Auto, 86% of its unit sales volumes come from Mazda-branded vehicles such as the CX-5, CX-30, CX-8 and Mazda 3. These tend to cost around MYR 130-160,000 (US$30-40k). In a middle-income country like Malaysia, these are premium products.

The company has performed well over the years, with consistently rising top-line revenues and earnings per share. Consumers appreciate Mazda’s sporty designs and enjoy the driving experience. Meanwhile, thanks to Bermaz Auto’s asset-light distribution model, it’s been able to earn a return on equity above 20% in most years.

In June 2020, the Malaysian government decided to scrap the previous 10% motor vehicle sales taxes, causing a one-off boom in car sales that lasted for two years. Since the world was experiencing a semiconductor chip shortage at the time, delays accumulated, and Bermaz Auto’s profits remained strong through FY2024, which ended in April 2024.

However, since then, Bermaz Auto’s earnings have gone straight down, for several reasons:

• In mid-2022, Malaysia’s motor vehicle sales tax increased to 10% and households reduced their purchases of new vehicles.
• In early 2022, Malaysia introduced an exemption from the 30% import duty for electric vehicles only, resulting in a surge in Chinese electric vehicles and prompting Bermaz Auto to offer discounts on its cars.
• The Mazda model lineup has been ageing, with Bermaz Auto’s four top-selling products being launched between 2017 and 2020.