Berjaya Auto (BAUTO MK; BUY; TP: MYR4.35; Upside: 18%): A play on weaker yen

Berjaya Auto (BAUTO MK; BUY; TP: MYR4.35; Upside: 18%): A play on weaker yen

• What's New? The JPY weakened to a six-year low against the USD after Bank of Japan (BoJ) announced a massive ramp up of its stimulus programme last Friday. Consequently, the MYR strengthened to MYR2.93/JPY100 vs MYR3.12/JPY100 at the start of the year and we see BAuto as the prime beneficiary within our auto space, for all of its imported cost is denoted in JPY (60-65% of COGS).

• What’s Our View? Management had previously guided that they had hedged their position at MYR3.09/JPY100 for purchases from May 2014 to Feb 2015. As a result of the weaker yen outlook, we now impute a lower average of (i) MYR3.07/JPY100 for purchases in FY4/15 and (ii) MYR2.95/JPY100 for purchases in FY16-17 (from MYR3.13/JPY100 previously). Correspondingly, our FY15/16/17 net profit is lifted by 11%/16%/17%.

BAuto’s growth trajectory (37% three-year earnings CAGR) is on track and superior to its peers’ average three-year CAGR of 6%. Valuations remain undemanding at 11x CY15 PER and 0.4x PEG, backed by 2+% yield. As such, we believe that a higher PER target of 13x (vs peers at 12x PER target) is in fact justifiable.

• Stars remain aligned. BAuto is bringing forward the launch of Mazda2 to mid-Jan (from 2Q15) with attractive price tag of ~MYR85k. This model will be CBU Thailand and as such, there is no cap on the number of Mazda2 that BAuto can bring in according to AFTA. Also, the Mazda2 was recently crowned ‘2014-2015 Car of the Year Japan’.

Other potential catalysts include: (i) stronger-than-expected demand for the soon-to-be-launched Mazda3 CKD (to be priced at MYR110-120k), (ii) surging TIV in the Philippines (+28% YoY in 8M14) and (iii) exclusive distributorship award for Mazda cars in Indonesia.