Results: Berjaya Auto (BAUTO MK; BUY; TP: MYR2.70) - Business as usual, for now

Results: Berjaya Auto (BAUTO MK; BUY; TP: MYR2.70) – Business as usual, for now

• 1QFY4/16 results within our expectation, below consensus. 2.25 sen interim dividend to go ex on 6 Oct 2015. 1QFY4/16 core net profit of MYR54m (-7% QoQ, -10% YoY) made up 25%/22% of ours/consensus full-year forecasts. Headline net profit included a one-off ESOS charge of MYR1.6m.

Despite strong double-digit revenue growth (+21% QoQ, +1% YoY) mainly from higher vehicle volume sales (+31% QoQ, +18% YoY), net profit was softer as operating margin contracted 3.7ppts QoQ due to (i) lower value sales mix (predominantly Mazda2 and Mazda3 CKD which were relatively lower value than previous best seller, CX-5) and (ii) higher costs from a weaker MYR against JPY.

An interim DPS of 2.25 sen was declared, representing a payout of 48% from core earnings (in line with our DPR assumption of 50%).

• Forecasts unchanged; expect weakness in coming quarters (especially 2HFY16) from higher COGS due to a weaker MYR. The market has penalised BAuto (share price -15% in last 2 months) for weaker earnings from a softer MYR from 2HFY4/16 onwards. As a result, foreign holdings fell 1.3ppts MoM to 19.4% as at end-Aug. The impact of higher costs would only hit BAuto when its forward hedging (JPY100/MYR3.15 average) exhausts by Dec 2015; leaving 4-5 months of FY16 exposed to the weaker MYR. The JPY/MYR now stands at JPY100/MYR3.57 vs our estimates of JPY100/MYR3.35 for FY16 and JPY100/MYR3.45 for FY17/18.

Meanwhile, its Philippines operation continues to gain traction and will help cushion the impact of MYR's weakness.

• Undemanding valuations at 10x CY16 PER; maintain BUY with an unchanged TP of MYR2.70, pegged on 12.5x CY16 EPS.Valuations are inexpensive at 10x CY16 PER, supported by 4.8% yields (CY16) which could see positive surprise given BAuto's strong net cash of MYR222m (MYR0.19/share) at end-1QFY4/16.