Bermaz
Auto (BAUTO MK; HOLD; TP: MYR2.05) - Surprise on the downside
- Limited upside for now. 2QFY4/17 earnings fell short, largely due to weaker volume sales and margin compression in the Malaysia operations. We cut vehicle volume sales forecasts by 9%-15% on (i) weak outlook amid suppressed consumer sentiment and (ii) delay in major CKD launches. This leads to FY17/18/19 earnings cut by 14%-20% and a lower TP of MYR2.05 (-18%), pegged to unchanged 13x CY17 EPS (mean valuation). With limited upside to our revised TP, BAuto is now a HOLD. Dividends are decent at 5+%.
- Better days in FY18. We believe that BAuto will see its earnings recover in FY18 as it reveals the brand new CX-5 model in 3QCY17, the bestseller model for BAuto in Malaysia (averaging 44% of total unit sales in the last 3 years). For now, valuations are fair at 13.5x CY17 EPS.
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