Update: Berjaya Auto (BAUTO MK; BUY; TP: MYR2.85) - Worth a re-look

Good morning,

We have an update on BAuto following (i) BoJ’s benchmark rate cut and (ii) additional 5% stake in Inokom acquired by BAuto.

Berjaya Auto (BAUTO MK; BUY; TP: MYR2.85) - Worth a re-look

• Beneficiary of a weaker JPY. Bank of Japan (BoJ) surprised the market last Friday (29 Jan), cutting its benchmark interest rate to below zero, which weakened the JPY; the JPY100/MYR has weakened 8% to 3.44 (1 Feb) from recent peak of 3.76. BAuto is a beneficiary as ~24% of its FY16E COGS is denominated in JPY.
• Tweak FY16/17/18 earnings forecast by -3%/+2%/+2% as we update our FY4/16 JPY100/MYR assumption to 3.40 from 3.35; our FY17/18 assumption of JPY100/MYR3.45 is unchanged. We also raised our FY16-18 PHP100/MYR assumption to 8.70 from 8.55.
• Strengthening its business model. BAuto has acquired another 5% of Inokom from Berjaya Group for MYR7.5m, raising its stake to 29% (funded internally - end-1HFY4/16 net cash: MYR249m or MYR0.21/shr); a positive earnings accretive acquisition. We do not rule out more acquisitions especially from related parties (e.g. 30% stake of BAP owned by Berjaya Philippines).
• Reiterate BUY; BAuto is our only BUY pick in the sector for its strong sales growth from new car models and better earnings outlook on JPY’s weakness. Valuations are undemanding (9.6x CY16 PER), 5+% yield (50% DPR) is decent.