Ben and his quantum leap move

by **Cals** Mon 18 Apr 2016, 01:46

Saturday, 16 April 2016

Ben and his quantum leap move

BY EUGENE MAHALINGAM

From just 8%, he now controls via management, a 67% stake in BAuto
THE move to acquire the majority of Berjaya Corp Bhd’s (BCorp) stake in car distributor Berjaya Auto Bhd (BAuto) by the latter’s management, led by Datuk Seri Ben Yeoh (caricature), is seen by many as somewhat of a “quantum leap” for the Mazda head honcho.
Yeoh, who is BAuto’s chief executive officer, controlled just 7.94% when the company was listed in November 2013.

However, following the recent corporate exercise to dispose of BCorp’s entire 21.88% interest in BAuto to a special purpose vehicle (SPV), now sees Yeoh, through management, having a controlling stake in the company with 66.67%.

“The move can be seen as BCorp paying tribute to Yeoh for his loyalty to the group,” says an industry observer, adding that the jump in stake in BAuto clearly signifies “maturity up the ladder.”
BCorp’s sale of its 21.88% stake in BAuto will be satisfied by shares comprising the remaining 33.33% stake in the SPV (worth RM120.25mil) and cash amounting to a whopping RM406.01mil, which is a significant commitment.
The SPV proposes to fund this cash portion through bank borrowings.
Analysts believe that the exercise will not affect BAuto’s earnings – in spite of the huge borrowing that it has now incurred.
“We maintain our earnings forecast for 2016, 2017 and 2018 with the expectation of higher sales volume, and lower cost with recovery of the ringgit and Philippines peso against yen,” says BIMB Securities Research.
MIDF Research also says it is positive on the move, particularly in removing the overhang in the market regarding the paring down of Berjaya Group’s stake in BAuto.
“More importantly, fundamentals remain intact. BAuto had always been driven by its current management, which were also the key people behind the turnaround of Hyundai in Malaysia (back then owned by Berjaya) before Berjaya sold it off to Sime Darby at huge profits.”
The research house has a buy call on the stock, emphasising that key share price catalysts over the next 12 months include the potential special dividends on top of an already attractive 4% underlying dividend yield.
MIDF adds that BAuto’s net cash accounts for 13% of market cap, with free cash flow yield of 6.5% on the back of normalising capital expenditure.
Further market share wins, driven by new launches, is expected to grow Mazda volume by 21%, says the research house.
Other catalysts for growth include recovery in manufacturing earnings after the launch of the facelift CX5, where manufacturing earnings were hit last quarter by a run-out of the current CX5 model.
From an initial public offering price of 70 sen per share, BAuto’s shares jumped to RM1.55 at opening before closing at RM1.82 on its first trading day. BAuto’s shares have been trading above the RM2-mark since April 2014.
Yeoh, who has over 40 years experience in the automotive industry, has a great track record of building brands from nothing.
From 2000 to 2007, he revamped the Hyundai brand under Hyundai-Berjaya Corp Bhd (which subsequently changed its name to Hyundai-Sime Darby Bhd).
Hyundai sales improved significantly under Yeoh’s reign, with sales surging within a short time – hitting 24,300 units in 2004 from 1,300 units in 2001, according to reports.
Like Hyundai before this, Mazda sales in Malaysia were slow. The brand was initially distributed by Cycle & Carriage Bintang Bhd (CCB), via its unit Hercules Automotive Engineering Sdn Bhd,
But CCB was primarily focused on sales of its Mercedes-Benz marque, which was generating better sales margins for the company.
The Berjaya group would then acquire Hercules Automotive Engineering (which was eventually renamed Bermaz Motor Trading Sdn Bhd) in 2008, and has since become the official distributor of Mazda motor vehicles in Malaysia.
Sales of Mazda cars in Malaysia were a meagre 1,000 units in 2008 when Bermaz took over the distributorship and they hit around 10,000 units in 2013.
Bermaz Motor has a 30% stake in Mazda Malaysia Sdn Bhd through a joint venture with Japan’s Mazda Motor Corp, which owns the remaining 70% stake in Mazda Malaysia.
With Yeoh at the helm, BAuto has seen significant growth.
The group’s net profit grew by a compounded rate of 54% from RM14.1mil in FY2010 to RM50.9mil in FY2013, while revenue grew by an annual compounded rate of 55% from RM286.8mil to RM1.06bil.