Homepage
PR Newswire
Bermaz Auto's ROE looks "unbelievably" high and it probably means that it has a different funding structure/business model compared to the rest of the competitors in the Msian market. Is worth a closer look:
Asset
- As expected, this is an asset light business as it is mainly involved in the distribution and retail of passenger cars. As exclusive distributor of Mazda/Peugeot (non exclusive for Kia), it only operates <10% of the retail branches, probably all on leases. It's biggest balance sheet item is the car inventories (~60% of equity).
- As a portion of the business deals with the customer who buy the car, their receivables are pretty short at ~20days, compared to the amount of time it pays its suppliers (~45days). So customers are funding ~20-25days of business. After accounting for its inventory days ~60days, it equates to a decent 30-35days CCC (cash conversion cycle).
- It is about 12% geared with MTNs (medium term notes) and because it is asset light, it should be able to easily repay all of them. The MTN seem to be money it raised to tide over Covid-19 winter, as it had previously finished paying up its bank loans back in FY19.
Business
- Under the tutelage of Towkay Vincent Tan (of Berjaya fame), Bermaz took over Mazda distributionship from Cycle and Carriage Bintang in 2008 (itself held the franchise from 1983). There has probably been a renaissance for Mazda on the local car passenger market as a result of this change in partnership? CBU cars were not competitive in terms of pricing and so in 2013, Bermaz and Mazda Japan set up their own JV to assemble/outsource the assembly for CKD vehicles.
- The relationship with their principals Mazda and Kia are pretty sticky because Bermaz have JVs with the brand principals to setup local assembly plants (own assembly/outsource). These assembly operations are accounted for as associates, further reducing balance sheet size. About 40% of COGS is sourced from their associates selling cars to them.
- Over the last decade, the passenger car population has been boosted by steroids from the Msian Gov - From cheaper taxes after implementing GST in mid 2015, to a tax-free period as a result of abolishment of GST in 2018 and finally the ~3year free SST period to boost car consumption during/post covid 19.
- The Msian car market is probably saturated? It is also immensely competitive especially in the mid/low tier. Cyclicality can be seen as sales rise with new models that gain popularity (~3-5year cycle for minor/major facelift). Of course, competitors' new models that gain popularity in the same car segment will hit hard on Bermaz too. Are the new partnerships with Peugeot (exclusive) and Kia (non exclusive) since 2020 and 2021, going to make a difference?
Structure
- As an associate of Berjaya Group, it was paying out most of its earnings to parent post IPO in 2013. With the MBO (mgt buy out) in 2017, it continued to pay out most of its earnings. Mgt has alot of incentives to keep paying out dividends to foot its 400mil cash bill to Berjaya Group. The Mgt group continues to own ~15% of the company with GLCs (EPF/PNB/Amanah etc) owning ~23% of it.
Asset
- As expected, this is an asset light business as it is mainly involved in the distribution and retail of passenger cars. As exclusive distributor of Mazda/Peugeot (non exclusive for Kia), it only operates <10% of the retail branches, probably all on leases. It's biggest balance sheet item is the car inventories (~60% of equity).
- As a portion of the business deals with the customer who buy the car, their receivables are pretty short at ~20days, compared to the amount of time it pays its suppliers (~45days). So customers are funding ~20-25days of business. After accounting for its inventory days ~60days, it equates to a decent 30-35days CCC (cash conversion cycle).
- It is about 12% geared with MTNs (medium term notes) and because it is asset light, it should be able to easily repay all of them. The MTN seem to be money it raised to tide over Covid-19 winter, as it had previously finished paying up its bank loans back in FY19.
Business
- Under the tutelage of Towkay Vincent Tan (of Berjaya fame), Bermaz took over Mazda distributionship from Cycle and Carriage Bintang in 2008 (itself held the franchise from 1983). There has probably been a renaissance for Mazda on the local car passenger market as a result of this change in partnership? CBU cars were not competitive in terms of pricing and so in 2013, Bermaz and Mazda Japan set up their own JV to assemble/outsource the assembly for CKD vehicles.
- The relationship with their principals Mazda and Kia are pretty sticky because Bermaz have JVs with the brand principals to setup local assembly plants (own assembly/outsource). These assembly operations are accounted for as associates, further reducing balance sheet size. About 40% of COGS is sourced from their associates selling cars to them.
- Over the last decade, the passenger car population has been boosted by steroids from the Msian Gov - From cheaper taxes after implementing GST in mid 2015, to a tax-free period as a result of abolishment of GST in 2018 and finally the ~3year free SST period to boost car consumption during/post covid 19.
- The Msian car market is probably saturated? It is also immensely competitive especially in the mid/low tier. Cyclicality can be seen as sales rise with new models that gain popularity (~3-5year cycle for minor/major facelift). Of course, competitors' new models that gain popularity in the same car segment will hit hard on Bermaz too. Are the new partnerships with Peugeot (exclusive) and Kia (non exclusive) since 2020 and 2021, going to make a difference?
Structure
- As an associate of Berjaya Group, it was paying out most of its earnings to parent post IPO in 2013. With the MBO (mgt buy out) in 2017, it continued to pay out most of its earnings. Mgt has alot of incentives to keep paying out dividends to foot its 400mil cash bill to Berjaya Group. The Mgt group continues to own ~15% of the company with GLCs (EPF/PNB/Amanah etc) owning ~23% of it.