• BAuto is a direct beneficiary of a  weaker JPY  with 60-65% of COGS denoted in that currency .

• Having imputed  a  weaker JPY/MYR, our  FY15/16/17  forecast is lifted by 11%/16%/17%.

• Reiterate  BUY  with  higher  TP  of  MYR4.35  (+24%),  pegged  to higher  CY15  PER  target  of  13x  (from  12x)  given  its  superior growth (37% 3-year earnings CAGR) and low PEG of 0.4x.

What’s New

The JPY  weakened to a six-year low against  the  USD after Bank of Japan  (BoJ)  announced  a  massive  ramp  up  of  its  stimulus programme  last  Friday.  Consequently,  the  MYR  strengthened  to MYR2.93/JPY100  vs  MYR3.12/JPY100  at  the  start  of  the  year  and we  see  BAuto  as  the  prime  beneficiary  within  our  auto  space,  for all of its imported cost is denoted in JPY (60-65% of COGS).

What’s Our View

Management  had  previously  guided  that  they  had  hedged  their position  at  MYR3.09/JPY100  for  purchases  from  May  2014  to  Feb 2015.  As  a  result  of  the  weaker  yen  outlook,  we  now  impute  a lower  average  of  (i)  MYR3.07/JPY100  for  purchases  in  FY4/15  and (ii)  MYR2.95/JPY100  for  purchases  in  FY16-17  (from MYR3.13/JPY100  previously).  Correspondingly,  our  FY15/16/17  net profit is lifted by 11%/16%/17%.

BAuto’s  growth  trajectory  (37%  three-year  earnings  CAGR)  is  on track  and  superior  to  its  peers’  average  three-year  CAGR  of  6%. Valuations  remain  undemanding  at  11x  CY15  PER  and  0.4x  PEG, backed  by 2+% yield.  As such, we believe that a higher PER target of 13x (vs peers at 12x PER target) is in fact justifiable.

Other  potential  catalysts  include:  (i)  stronger-than-expected demand for the soon-to-be-launched  Mazda2  and  Mazda3  CKD, (ii) surging TIV in the Philippines (+28% YoY in 8M14) and  (iii) exclusive distributorship award for Mazda cars in Indonesia.

Source: Maybank Research - 4 Nov 2014