Wednesday, March 15, 2017

Bermaz Auto : Coming out of a rough patch BUY

Bermaz Auto : Coming out of a rough patch         BUY

We maintain BUY on Bermaz Auto (BAuto) but lower our fair value to RM2.30 (from RM2.45 previously) based on an unchanged PE of 13x. We cut our FY17F-FY19F net profit projections by 7-26% on lower sales volume assumptions for both Malaysia and Philippines given the softer market conditions, which we believe will recover from FY18. There was a significant core net profit erosion in 3QFY17 (-15%QoQ, -41%YoY) due to: (1) lower revenue (-28%QoQ, -35%YoY) on poorer sales for both Malaysia and the Philippines; (2) lower associate earnings (from its 30%-owned MMSB) of only RM0.1mil (vs. previous average of ~RM3mil/quarter); profit contribution from associate has been insignificant at 4-6% of group PBT.

What happened to sales in 3Q?: (1) Malaysia sales fell for the seventh consecutive quarter (-28%QoQ, -40%YoY) on lower numbers for nearly the entire line-up; (2) Philippine sales dropped (-13%QoQ, -21%YoY) due to the supply constraint on one model and new launches by competitors. Core net profit of RM93mil for 9MFY17 was lower by 35%YoY, hit mainly by poor sales in Malaysia for the last two quarters and lower margins (EBIT margin for Malaysia dropped 3ppts to 10%, overshadowing Philippines' 4ppts increase to 13%). However, there are some bright sparks and we highlight the following positives: (1) margins rebounded in 3Q; (2) BAuto declared a third dividend of 2.75 sen/share, bringing its total YTD payment to 8.5 sen or payout of 101% of EPS. We expect earnings to improve in FY18. Also, the BAP IPO is on track and targeted for next month. The main positives are: (1) the additional yield (estimated at 3.2-3.4%) to BAuto shareholders from the offer for sale (under the IPO) and repatriation of a part of its cash pile which could be distributed as special dividends; (2) the investment of IPO funds into building new outlets and facilities for BAP to boost its business.

Others :
Lafarge Malaysia : Earnings to remain positive    HOLD
UMW Oil & Gas : Short-term charter from Petrofac          HOLD
Oil & Gas Sector  : No upstream rebound yet despite Petronas’ stronger 4Q results                          NEUTRAL

Wellcall Holdings, Ewein,Sasbadi Holdings, LB Aluminium

China : Treading on thin ice

F&B Sector : EKA Noodles reports board changes, new biggest shareholder surfaces
Transportation Sector : Transocean in RM140mil reverse merger deal, Nadzmi to give up control
Infrastructure Sector : RAM assessing impact on Sarawak Hidro’s sukuk murabahah

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