AmResearch reaffirms Buy call on Berjaya Auto

KUALA LUMPUR: AmResearch has reaffirmed its Buy call on Berjaya Auto (BAuto) with a higher fair value of RM2.30 a share from RM2.10 a share previously following its sterling interim results for the first half ended Oct 31, 2013.
The research house said on Monday BAuto’s first half results had strongly outperformed consensus and was in fact, ahead of its already bullish forecast.
BAuto group reported a second quarter net profit of RM28mil, which brought its first half earnings to RM54mil, which would account for 142% of consensus estimates and 108% of its projection, if annualised.
“We raise our FY14F-FY16F earnings by 6%-8% to factor in (1) lower effective duty cost for a recently launched CBU model due to a favourable change in docket pricing; and (2) higher earnings for 30%-owned Mazda Malaysia Sdn Bhd (MMSB), which strongly outperformed our initial expectation due to better-than-expected margins and better-than-expected Japanese yen rates locked in,” it said.
AmResearch said despite a lower revenue (-35% on-quarter), earnings were up by 6% on-quarter as EBIT margins saw a massive uplift from 9% in the first quarter to 12% in the second quarter.
The factor were due to a much higher proportion of completely knocked down (CKD) model sales which fetch higher margins and another completely built-up (CBU) model which achieved 15% lower excise duties in the second quarter due to a change in docket price. The margin uplift as such, looks sustainable in the second half of its current financial year.
The research house pointed out BAuto’s revenue contraction of 35% on-quarter was due to production hiccups faced for the CKD variants of the CX5.
Production for the CX5 averaged only 300 to 400 units a month in the second quarter compared to a planned 1,000 to 1,200 a month. However, production may recover fully to the initially planned 1,000 to 1,200 a month in the fourth quarter.
BAuto’s associate, MMSB, registered first half earnings of RM4.5mil, which already met the research house’s full year forecast of RM4.5mil.
“BAuto is deeply undervalued at 10 times FY15F earnings relative to sector average of 12 times given its strong earnings trajectory, status as a proxy to the upcoming EEV programme, and exposure to high growth Asean auto markets,” said AmResearch.