Tuesday, March 21, 2017

Analyzing Mazda Philippines' Business

Unless you’ve been living under a rock, Mazda Philippines is poised to file an Initial Public Offering (IPO) sometime this year. Clearing the first hurdle, Bermaz Auto Philippines, Inc., as the company is officially known, has gained approval from the Securities and Exchange Commission (SEC). All that’s left now is approval from the Philippine Stock Exchange (PSE) so that a listing date could be formalized. Now, as part of regulatory requirements, Bermaz Auto Philippines submitted an Offering Prospectus. Combing through the 134-page report, it gives insights to Mazda’s operations in the Philippines.

You can read the whole Offering Prospectus yourself here or you can also scroll down and let us give you some pertinent points that we’ve found out. We’ve even bolded some key words for you to make it an easier read.
  • A total of 155,000,000 common shares are being offered, where 71,570,000 are existing common shares and the remaining are new common shares. Share price is P 8 per share. A total of P 1.24 B will be raised from the offering.
  • IPO proceeds will be used for: A) construction of a warehouse, and body and paint facility (P 400 million); B) establishment of a Mazda training facility for automotive repair and motor services (P 50 million); and C) construction of Mazda showrooms and satellite outlets (P 188.5 million). 
  • Bermaz says that construction of a warehouse, and body and paint facility will serve as a logistics center for the storage and handling of vehicles, spare parts, accessories, and tools. By integrating the logistics services, which they currently outsource, it will be able to ensure quality control and improve operational efficiencies through future cost savings.
  • The Mazda training facility will be established within the warehouse facility. This training facility is aimed at instilling the skills required for repairing, servicing, and maintaining Mazda vehicles. Integrated in the training is a comprehensive understanding of Skyactiv technology and its integrations within the Mazda brand.
  • A portion of the IPO proceeds will be used for the construction of dealer-operated or leased Mazda showrooms and satellite outlets in strategic provincial locations.
  • Number of employees: 45, of which 9 are officers.
  • Bermaz Auto Philippines does not have company-owned dealerships. There are 18 dealership locations nationwide. An additional two dealerships are under construction: Butuan and General Santos. Other locations in Northern Luzon, Bicol, and Central Visayas are being considered.
  • They have a high volume and revenue growth of more than 40 percent from Fiscal Year 2014-2016 (fiscal year ends on April 30). 
  • Bermaz Auto Philippines has established a strong relationship with Mazda Japan since 2012. 
  • Distributorship Agreement with Mazda Japan is expiring on May 31, 2018, but Bermaz Auto Philippines sees that it will renewed routinely as the contract with Mazda Japan is renewed every 3 years.
  • Mazda Philippines sees the imposition of the new vehicle excise tax, which may affect sales, as one of its biggest business risks
  • Other risks include the availability of financing facilities to dealers and customers which may affect growth. 
  • Vehicle sales comprise 94.8 percent of BAP’s total revenue, 3.6 percent comes from spare parts and 1.5 percent from PMS. Despite the huge growth in volume and revenue of more than 40 percent,  EBITDA (Earnings Before Income Tax, Depreciation, and Amortization) and net income margins remain steady around 10 percent and 7 percent respectively. Of course, operational efficiency and cost reduction may improve the margins.
  • 83 percent of volume sales are from 3 models: Mazda3 (35 percent), Mazda2 (27 percent), and CX-5 (21 percent). Both the Mazda2 and Mazda3 saw strong growths at 48 and 80 percent respectively.
  • 62 percent of volume sales are from Metro Manila at 2,899 vehicles during Fiscal Year 2016 from 6 dealers. This is followed by the Calabarzon and Mimaropa areas with 14 percent (3 dealers) and Central Luzon (4 dealers) and Central Visayas (1 dealer) at 8 percent apiece.
  • From 2014 to 2016, sales from the NCR surged 46 percent. This is closely followed by Central Luzon at 45 percent. The Central Visayas has also seen a 40 percent growth while the Calabarzon/Mimaropa area gaining 37 percent. 
  • Only the Ilocos region suffered declining sales which are down 11 percent from 2014-2016.
  • Average volume per dealership increased by 43 percent.
  • The company has a robust cash position, comprising 49 percent of total assets. They have quick collections (5 days sales outstanding) and long payment terms (more than 90 days payable).
  • Dividend policy is up to 40 percent of the net profit for the previous fiscal year, subject to the provision of sufficient funds for the implementation of the business plan, operating expenses and budget, and other requirements. 
Source: Bermaz Auto Philippines Offering Prospectus


  1. Interesting that Bermaz wants to tap the local stockmarket considering that there are not that many publicly traded auto stocks. But they did their homework and are launching according to typical Philippine style templates. I was initially curious about the body and paint shop then I recalled that sometime ago, when GM products were sold by a GM owned and operated outfit - before it was franchised to Covenant Car Company as the local distributor - The Chevrolet Optra imports from Thailand were processed in a section of the shippers [APL I think] customs bonded warehouse in Calamba Laguna. Rectification work was done to paint and body in the event of shipping damage. It was a full blown paint shop with proper tools and booths. Bermaz are just doing the same for shipped Mazda units so having their own paint and body shop in house maintains factory standards of quality. Its a big investment if the fancy booths and green technology is to be used.