Berjaya Auto (BAUTO MK; BUY; TP: MYR2.90): Dashing to the finish line

Berjaya Auto (BAUTO MK; BUY; TP: MYR2.90): Dashing to the finish line

• What's New? 4QFY4/14 core net profit of MYR53m (+44% QoQ, +128% YoY) took FY14 core earnings to MYR143m (+190% YoY), making up 112%/114% of ours/consensus' full-year forecasts.

The robust YoY results were driven by: (i) stronger vehicle sales (domestic & the Philippines); up 34% YoY to 11.8k units, (ii) higher average selling prices (ASPs) with improved margins, on better product mix (particularly with its new launches; i.e. Mazda3, CX-5 2.5L and Biante) and (iii) cheaper imported component costs from favourable MYR/JPY rates (effective rate of ~MYR3.35/JPY 100 in FY14 vs ~MYR3.50/JPY 100 in FY13). Meanwhile, BAuto incurred a MYR10m one-off ESOS charge in FY14.

• What’s Our View? Our forecasts are unchanged.  We like BAuto for its strong earnings trajectory (61% 3-year net earnings CAGR) driven by its strong new launches pipeline with operating margins sustaining at ~11%.

Product-wise, Mazda has expressed its intention to launch five new fuel-efficient SKYACTIV models over the next three years. New models launches that could likely hit the market in 2015 would be the more affordable B-segment Mazda2 (1QCY15) and a smaller CX-3 SUV (2HCY15). BAuto will also roll out the CKD C-segment Mazda3/D-segment Mazda6 by 4QCY14/1QCY15 respectively.

We are also positive on its overseas 60%-owned BAP operations, as it rides on the Philippines’ TIV demand (+22% YoY in 4M14). The overseas outfit accounted for 7% of group EBIT in FY14.

BAuto’s valuations are undemanding at 9.6x CY15 PER vs the auto sector market’s weighted average of 11.3x CY15, offering a 26% upside to our TP of MYR2.90 (12x CY15 PER) and supported by net yield of ~3% (based on 30% DPR).

• Other possible near term catalyst? The Philippines’ TIV sales grew by 16% YoY to 182k units in CY13. As at end-April, the Philippines’ TIV continued to record strong cumulative TIV growth at 22% YoY. As a result, BAuto’s 60%-owned BAP recorded a 2.5x jump in vehicle sales to 2.3k units in FY14 on (i) low base and (ii) newer model line-up. With full-year impact of the all-new Mazda3 and possible introduction of Mazda2 in the pipeline, we expect BAP to record a conservative vehicle sales jump to 3.5k/5k units in FY15/16. We see further upside in BAP as it rides on Philippines’ strong TIV growth in the near term.