BAuto expected to post better 4Q results

by **Cals** Thu 05 Jun 2014, 20:15

Business & Markets 2014

Written by Maybank IB Research

Thursday, 05 June 2014 09:30

Berjaya Auto Bhd
(June 4, RM2.10)
Maintain buy with target price of RM2.90: BAuto’s results for the fourth quarter ended April 30 of financial year 2014 (4QFY14) are likely to beat consensus’ expectations. We expect it to report solid net profit of RM45 million to RM50 million (+52% to 69% quarter-on-quarter [q-o-q]) in the quarter with a higher gross profit margin (+1.5 percentage points [ppts] to 17%), driven by: (i) better sales mix; and (ii) cost savings from higher localisation and the weaker ringgit against the yen.

BAuto is the distributor of Mazda vehicles in Malaysia and the Philippines. FY14 sales for Mazda vehicles met our expectations, coming in at 9,500 units for Malaysia and 2,300 units for the Philippines.

We hike FY14, FY15 and FY16 core net earnings by 23%, 20% and 20% respectively after raising our gross profit margin assumption to 17% (+1.5ppts), taking into account: (i) a more favourable ringgit/yen exchange rate (from 3.22/¥100 to 3.17/¥100); (ii) higher localisation of content; and (iii) improved product mix.

We continue to like BAuto for its strong earnings growth prospects (61% three-year net earnings compound annual growth rate). Growth will largely be driven by its strong new launch pipeline and superior cost control by management.

Product-wise, Mazda has expressed its intention to launch five new fuel-efficient SkyActiv models over the next three years. Our channel checks suggest that the next new models to hit the market will be the B-segment Mazda2 in 1Q of calendar year 2015 (CY15) and a smaller CX-3 sport utility vehicle in the second half (2HCY15).

These launches will be timely as we expect consumers to downtrade to smaller and more economical cars. BAuto will also roll out the completely knocked-down Mazda3 (C-segment) and Mazda6 (D-segment) models, with cheaper price tags by 4QCY14 and 1QCY15 respectively.

BAuto is our preferred auto play, on its strong product line-up, earnings growth and undemanding valuations. Its valuations are undemanding at 8.3 times CY15 price-earnings ratio (PER) versus the auto sector market’s weighted average of 11.3 times CY15, offering a 44% upside to our top end of the street target price of RM2.90 (12 times CY15 PER) and supported by net yield of about 3% (based on 30% dividend payout ratio). — Maybank IB Research, June 4

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This article first appeared in The Edge Financial Daily, on June 5, 2014.[/size]