Berjaya Auto (BAUTO MK; BUY; TP: MYR2.60) - Positive feedback from NDR

Berjaya Auto (BAUTO MK; BUY; TP: MYR2.60) - Positive feedback from NDR

• Still the best ride among its peers. News of the current management buying out BGroup stake in BAuto was positively taken and it was the main focus. We trim our FY16-18 earnings forecasts by 3%-5% to account for lower vehicle sales expectation. Maintain BUY with a higher TP of MYR2.60 (+8%) on higher CY17 PER of 13x (+0.5SD) to reflect the valuation of its Philippines operation.
• Initial SPV structure to be revised. Following news of a SPV structure (in mid-April) for the current BAuto management to hold a controlling stake in BAuto, BGroup was able to pare down its initial 21.88% stake to 14.05% via private placements to selected institutional shareholders. Further clarity is pending from management on the revised structure of the SPV. Nonetheless, we remain positive on this development.
• Further re-rating in sight … Other key positives discussed were the potential of (i) higher dividend and (ii) the listing of 60%-owned Philippines operation. Closest comparison in the Philippines auto industry would be GT Capital (GTCAP PM; BUY), a conglomerate with exclusive distributorship of the Toyota marque. Our MKE Philippines Research counterpart values GT Capital’s auto business at 25.5x CY17 EPS for Toyota’s unrivalled dominance (39% market share in 2015).