- The Edge Malaysia highlighted an interview with Berjaya Auto’s (BAuto) CEO, Datuk Seri Ben Yeoh. A key take away from the article is that the production capacity for MMSB (30% owned) has been doubled to 20,000 per annum from 10,000 per annum previously.

- This underpins management’s earlier guidance that the commencement of MMSB’s dedicated trim and final shop by end of April (last month) will significantly enhance the group’s capacity.

- Prior to the dedicated plant, MMSB’s trim and final production process was outsourced to Inokom, where production facilities were shared with other makes that Inokom contract assembles. We expect a reduction in overall contract assembly fees paid to Inokom from the new plant (estimated at USD1,500-USD2,000/car) as more processes are now undertaken by MMSB’s own plants.

- According to the article, the group is looking to allocate 15K/annum production (out of 20K) for the local market, which is a positive surprise as this would improve the group’s ability to monetise the extensive waiting list (6-months equivalent) for the CX5. Furthermore, BAuto benefits more from domestic market sales (which is captured under a wholly-owned subsidiary), compared to export sales which is captured under 30%-owned MMSB.

- The Mazda 3 CKD is scheduled to commence by 3QCY14 and Mazda 6 CKD by 2QCY15, in line with earlier guidance. However, another positive surprise was that BAuto is targeting sales volume of up to 15,000 next year (FY15F), which is 15% higher that our current projection, suggesting room for upward revision.

- Additionally, despite bullish vibes in the general Philippines car market, management is conservatively maintaining its volume guidance for the Philippines. Any changes would hinge on the support of Mazda Japan (perhaps, in terms of more competitive CBU cost) to expand its presence there.

- We re-iterate our high conviction BUY on BAuto (FV: RM3.00/share) for its:- (1) Strategic transition to a CKD-driven business model which will drive margin expansion in the next 2-3 years; (2) the best proxy to Malaysia’s EEV program; and (3) exposure to high growth overseas markets in Thailand and the Philippines. 

Source: AmeSecurities