(Updated)

Bermaz Auto share volume spikes as investors weigh Kia JV

Bermaz Auto share volume spikes as investors weigh Kia JV
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KUALA LUMPUR (April 2): Bermaz Auto Bhd’s share trade volume quadrupled so far today while the stock’s price rose nearly 5% after the Mazda car distributor in Malaysia said yesterday it had entered into a joint venture (JV) agreement with South Korea-based Kia Motors Corp to undertake production and assembly of Kia vehicles in Malaysia.

At Bursa Malaysia’s 12:30pm break today, Bermaz’s share trade volume settled at 4.6 million units compared to about one million shares yesterday. Meanwhile, Bermaz’s share price rose seven sen or 4.86% to RM1.51.

At RM1.51, Bermaz has a market value of about RM1.75 billion based on the company’s 1.16 billion issued shares.

Yesterday, Bermaz said in a bourse filing that the JV will involve a newly-incorporated company known as Kia Malaysia Sdn Bhd (KMSB).

Upon incorporation, KMSB will have an initial share capital of RM3,000 comprising 3,000 shares issued at RM1 each, whereby Bermaz and Kia will hold 1,000 and 2,000 KMSB shares respectively, according to Bermaz.

Bermaz said the 1,000 and 2,000 KMSB shares represent 33.33% and 66.67% stakes in KMSB respectively.

"Depending on the funding requirements of KMSB, the issued share capital of KMSB will be increased to RM60 million comprising 60 million ordinary shares at a later stage. Bermaz will fund its portion (33.33%) of the share capital of KMSB of RM20 million from internally generated funds,” Bermaz said.

In a separate filing yesterday, Bermaz said the company had also entered into a subscription cum shareholders’ agreement for the subscription of a 65% stake in the enlarged issued share capital of Dinamikjaya Motors Sdn Bhd (DJMSB), which was recently awarded, among others, the distributorship of Kia vehicles in Malaysia by Kia.

Bermaz said the subscription cum shareholders’ agreement involves the subscription of 3.25 million new DJMSB shares for RM3.25 million or RM1 each by Bermaz.

Today, Maybank Investment Bank Bhd (Maybank IB) analyst Liaw Thong Jung wrote in a note that its back-of-envelope calculation suggests that the Kia operations could contribute about RM60 million to RM90 million in net profit a year to Bermaz over the next three years.

Liaw said Maybank IB’s forecast is based on assumptions including “10,000-15,000 unit volume sales per annum and a 5% net distribution margin".

“Our (Bermaz earnings) estimates are unchanged, ahead of our concall (conference call) with Bermaz today,” Liaw said.

Liaw said Maybank IB had also maintained its "buy" call for Bermaz shares with an unchanged target price of RM2.10.

MIDF Amanah Investment Bank Bhd analyst Hafriz Hezry said an important point to note is Bermaz's Kia venture maintains an asset-light structure

Hafriz said, "Bermaz only takes a minority 33.33% stake in the capital expenditure (capex)-intensive assembly unit under KMSB, whereas for the capex-light, highly cash-generative distribution business under DJMSB, Bermaz takes a controlling 65% stake."

"Given the asset-light approach to the partnership, we expect little impact to Bermaz’s balance sheet from the venture.

"Potential 8%-10%/27% earnings impact for FY22F/23F (ending April). BUY re-affirmed (for Bermaz shares) with upside bias to current RM1.70 target price,” Hafriz said.

Chong Jin Hun