Outstanding Mazda sales volume growth in Malaysia

by **Cals** Thu 25 Sep 2014, 01:19

Business & Markets 2014

Written by CIMB Research

Wednesday, 24 September 2014 11:19

Berjaya Auto Bhd
(Sept 23, RM3.19)
Initiate coverage with “add” call and target price of RM4.44: Our valuation is based on 14.0 times calendar year 2016 price-to-earnings ratio (PER), attaching a 10% premium over its peers’ PER average, due to its relatively higher growth trajectory. Accumulate the stock now to ride on its growth.

Berjaya Auto (BAuto) is principally the distributor and retailer of Mazda vehicles and provides after-sales services for Mazda vehicles in Malaysia and the Philippines. Its history can be traced back to 2008, when it was awarded the rights by Mazda Japan to distribute specific models of Mazda’s completely built-up (CBU) vehicles, spare parts, accessories and tools in Malaysia.

BAuto expanded its operations to the regional market in 2012, when it was awarded the rights to distribute specific models of Mazda CBU vehicles, spare parts, accessories and tools in the Philippines by Mazda Japan. On top of distribution, BAuto also assembles Mazda’s completely-knocked-down (CKD) models via its associate Mazda Malaysia Sdn Bhd (MMSB), which is a joint venture with Mazda Japan.

MMSB started assembling Mazda CKD vehicles in 2013, when it appointed Inokom Corp Bhd as its contract assembler to carry out the assembly of Mazda vehicles.

Mazda has been outperforming its competitors over the past few years. Its sales volume growth in Malaysia has been outstanding, recording a financial year 2009 to 2014 (FY09-14) five-year compound annual growth rate ( CAGR) of 60.7%. Its venture into the Philippines has also been successful, with Mazda’s sales volume jumping 60.0% year-on-year in FY13.

This success is mainly attributed to the Mazda brand’s competitive strengths, with a focus on engineering affordable vehicles that are enjoyable to drive.

BAuto’s key success factors include its asset-light business model and pursuing the right strategy. Its partnership with Mazda Japan for its assembly operation limits its exposure to any huge capital expenditure outlay for the manufacturing facility and running of assembly operations, and its strategy of focusing on a targeted niche customer segment ensures that it does not have to offer huge discounts to capture market share that could lead to a compression of profit margins.— CIMB Research, Sept 22

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This article first appeared in The Edge Financial Daily, on September 24, 2014.[/size]