FW: Results: Bermaz Auto (BAUTO MK; HOLD; TP: MYR1.95) - Weathering through

 

We have results notes on and Bermaz today.

 

Bermaz Auto (BAUTO MK; HOLD; TP: MYR1.95) – Weathering through

• Quarterly should have bottomed; maintain HOLD. 1QFY4/18 earnings disappointed as associates' contribution plunged (-88% QoQ, -87% YoY) amid still weak operating margins as BAuto phases out the current CX-5 model prior to a new CX-5 introduction by end-Sep 2017. That said, we believe that 1QFY18 earnings should have bottomed; we cut FY18 net profit forecasts by 7% on lower associates' contribution and higher A&P expenses but keep FY19-20 numbers largely unchanged (-<1%). Pegged to unchanged 12.5x CY18 PER (-0.5SD of mean), our new  TP is MYR1.95 (-5sen). With limited upside for now, maintain HOLD.
• Better results ahead. 1QFY18 core net profit of MYR20m (-9% QoQ, -52% YoY) met just 12%/11% of our/consensus initial full-year forecasts. The key culprit behind 1QFY18's shortfall was a plunge in associates' earnings (weak 30%-owned MMSB and 29%-owned Inokom due to the phasing-out of production of the current CX-5), wiping out positives from a 10% QoQ revenue growth and a 0.5ppts operating margin expansion that came with it. Nonetheless, we expect much stronger performance sequentially with a one-month sales contribution from the brand new CX-5. Also, the expected strong demand for this new model should lift associates' earnings back to the norm as production resumes; further boost in production would come from an export angle to neighbouring countries where shortages of supply are likely for this particular model.

Despite the poor performance, BAuto maintained a high DPR ratio of 86% (1.5sen interim DPS to go ex on 9 Oct 2017), backed by its net cash position of MYR89m as at end-July 2017.

• Still lacking a strong re-rating catalyst. We expect some downgrades by consensus today, especially to FY18's earnings whereby the top-end of the estimates was as high as MYR201m. We remain conservative in our expectations, especially in our forex assumptions where we have projected JPY100/MYR to sustain at 3.90 (currently 3.84), having accounted for geopolitical tensions which would likely taper the recent strength in MYR.