AmWatch - Berjaya Auto : Rising scope for upside, EEV incentives kicking in BUY, 7 Apr 2014

STOCK FOCUS OF THE DAY

Berjaya Auto : Rising scope for upside, EEV incentives kicking in                 BUY

We re-affirm our high conviction BUY on Berjaya Auto (BAuto). Our fair value is raised to RM3.00/share (from RM2.50/share previously) after raising our earnings projections and rolling over our valuation to CY15F earnings.

Management expects FY14F volumes at 9K-10K units (+25% YoY), rising by 30%-48% to 13K-14K in FY15F. The CBU 2.0 litre Mazda 3 (C-segment) was launched in mid-Mar 2014 with initial orders hitting 150-200 units. The CKD launch, which entails a 1.5 litre variant, is expected in Oct 2014 and should be a huge volume kicker. Management has a volume target of 5K/annum for the Mazda 3 (vs. our forecast of 3.2K/annum). The Mazda 6 CKD (D-segment) will be launched in 4QFY15F at production of 250/month vs. our sales assumption of 190/month. New models in the pipeline that we have yet to factor in include the CX3 and a new CX5 variant.

Management targets CKDs to account for 75% of TIV in FY15F (vs. our FY14F: 44%, FY15F: 67%, FY16F: 83%) mainly due to the deviation in Mazda 3 projection. Any higher than expected sales of the Mazda 3 means upside to both our volume and margin forecasts.

Production at Inokom has improved to 800-900/month from 400-500/month in the past quarter following Mazda’s assistance in resolving production issues. A dedicated Mazda trim & final shop will be ready by end April, which will increase capacity to 1,300-1,400/month.  We raise our projections by 4%-18% over FY15-16F (and FY14F by 1%) to factor in higher duty savings gained from EEV incentives and Mazda 6 exports at a rate of 4K/annum from 4QFY15.

At 10.6x FY15F PE, BAuto trades at a 16% discount to the sector. Net cash of RM178mil (FY15F) accounting for 12% of market cap, suggests room for acquisitive growth. In the near-term, a recovery in Mazda TIV following its production recovery and outperformance in upcoming 4QFY14F results are strong catalysts.

Others :

Petronas Gas : Positive on a more stable gas processing formula               HOLD

Public Bank : On track to merge foreign and local shares                                HOLD

QUICK TAKES

Plantation Sector : Newsflow for week 31 March - 4 April              OVERWEIGHT

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