Update: Berjaya Auto (BAUTO MK; BUY; TP: MYR2.70) - Oversold on forex exposure?

Berjaya Auto (BAUTO MK; BUY; TP: MYR2.70): Oversold on forex exposure?

• Hit on COGS from weaker MYR to be cushioned by stronger revenue from 60%-owned Philippines ops. BAuto’s CBU cars are imported in JPY; the weak MYR is negative to COGS. However, higher COGS will be cushioned by stronger revenue as PHP strengthens against MYR.

Also, impact of higher COGS will not be immediate as BAuto was able to hedge at JPY100/MYR3.15 for purchases up to Dec 2015 (10% below current rate of JPY100/MYR3.50).

• Cut our FY15/16/17 earnings forecasts by 19%/24%/23% having (i) revised our JPY/MYR and PHP/MYR forex assumption, (ii) lowered our vehicle sales assumption for FY17/18 and (iii) trimming associates contribution.
• Selling overdone? BAuto’s share price retraced have by 23% in the last 1 month as market price in weaker earnings from higher COGS. However, we believe that selling may have been overdone as market may not have considered the positive impact on earnings from the strengthening PHP.
• Attractive entry point.Current valuation offers an attractive entry point with ex-cash CY16 PER of 8.7x despite significant cuts in our earnings forecasts. Balance sheet is strong with net cash of MYR281m. Dividends could surprise given strong net cash position (MYR281m as at end FY15) and asset-light business model; current yields are decent at 4+% (50% DPR). Our MYR2.70 TP is pegged at unchanged 12.5x CY16 PER.