Bermaz Auto (BAUTO MK; HOLD; TP: MYR1.95) - Below expectations

We have a results note on BAuto.

Bermaz Auto (BAUTO MK; HOLD; TP: MYR1.95) - Below expectations

• HOLDing for 5+% dividend yields. 3QFY4/17 earnings fell short, largely on weaker-than-expected volume sales. Associates’ profit (mainly from 30%-owned MMSB) shrunk on higher imported component costs. We cut FY17-19 earnings forecasts by 14%-20% after (i) lowering our vehicle volume sales estimates by 10%-12% and (ii) adjusting our JPY100/MYR to 3.85 (from 3.80) for FY18/19. Our new TP is MYR1.95 (-5%) on rolled forward valuations to CY18, pegging at a revised PER of 12.5x (from 13x), -0.5SD of mean. Maintain HOLD.
• Cut FY17/18/19 net profits by 14%/20%/19%. We cut Group vehicle volume sales by 10%-12% (mainly from Malaysia; see table overleaf) as we take into account BAuto’s strategy to realign its focus on its key bestselling SUV models which have incorporated the launch of CX-5 CKD/CX-9 CKD in Jul 2017/Apr 2018. We now look towards -17% YoY total volume contraction in FY17, +13% YoY rebound in FY18 (previously FY17: -5% YoY, FY18: +10% YoY). Coupled with our JPY/MYR adjustments which affect 30%-owned MMSB and CBU vehicle costs, we lower our net profit expectations by 14%-20%.