Update: Berjaya Auto (BAUTO MK; BUY; TP: MYR2.40) - Change in ownership would be positive

Berjaya Auto (BAUTO MK; BUY; TP: MYR2.40) - Change in ownership would be positive

• A confidence booster to investors. The sale of Berjaya Group’s (BGroup) stake in BAuto to a special purpose vehicle (SPV) that is 33%/67% owned by BGroup and the current management of BAuto (led by CEO Datuk Seri Ben Yeoh) would be positive in that it would signify management’s confidence in the company.
• Management participation? The press reports that an SPV is to be set up to purchase BGroup’s 21.88% stake in BAuto as well as BAuto’s current management’s 10% stake in the company, for a total sum of MYR767m (MYR2.10/shr).  BGroup’s portion will be satisfied by a 33% stake in the SPV (worth MYR120m) and cash amounting MYR406m, to be funded by bank borrowings.
• Higher dividend payouts? Given that the SPV would have to gear up to undertake this acquisition, we think it may be possible for BAuto to raise its dividend payout ratio from an estd. 50% presently to possibly as high as 70% to help defray the acquisition cost.
• Wild card: Listing of its 60%-owned Philippines ops? BAuto’s operation in Philippines continues to gain traction and will soon have a 3-year track record that would allow it to explore IPO opportunities.