Highlights

Berjaya Auto (BAuto) is the sole importer and distributor of Mazda cars (through 100% owned Bermaz), which has experienced strong demand with 4-year CGAR of 67.6% p.a. for the period FY04/09-13, as BAuto launched new models, introduced CKD options and increased distribution networks.

BAuto has also ventured into automotive manufacturing (30:70) with Mazda Japan via Mazda Malaysia (MMSB). Currently, MMSB outsources the assembly to Inokom (Sime Darby) for CKD Mazda 3 and Mazda CX5. Unlike other manufacturers, MMSB also supply Mazda CX5 to export. MMSB is investing RM100m for its own manufacturing facility of 20,000 p.a. capacity, which is expected to commence operation by mid-2014.

In the Philippines, BAuto has assumed the sole importer and distributor of Mazda car (through 60% stake in BAuto Philippines), which commenced operation in Jan 2013. Sales of Mazda car has increased by 42.1% ytd.

Comments

Mazda is a growing brand in Malaysia, as it gains market share from 0.2% to 1.5% (See Figure #3) due to the successful marketing strategy of BAuto in recent years. We expect Mazda sales to grow by 18%, 20% and 8% for FY04/14, FY04/15 and FY04/16 respectively, underpinned by new models, CKD models and expanding distribution network.

Sales were mainly driven by the availability of CKD Mazda 3 and Mazda CX5 models, which has increased their pricing competitiveness. We expect the upcoming new Mazda 3 (by mid-2014) to be localized as well, which is line with BAuto’s target to increase localization contents to 50%. Mazda 3 is one of the top selling models of Mazda range.

With the completion of its own manufacturing facility by mid- 2014, we expect more CKD models. The plant is expected to cater for the export market as well in order to improve plant utilization and achieve economy of scale (lower unit cost). The export market presents stronger growth opportunity to MMSB, given the maturity of Malaysia car ownership rate.

The facility itself is within Inokom’s Kulim Special Zone Area, allowing MMSB to benefit from government’s incentives and supports from the automotive industry. MMSB will also share the existing supporting facilities with Inokom, cutting the capital expenditure to develop these facilities.

Philippines present another strong growth market for BAuto, given its huge population of 105.8m and low car ownership rate of only ~3.2%. We expect sales growth of 200%, 20% and 10% for FY04/14, FY04/15 and FY04/16 respectively.

Risks

• Prolonged tightening of banks’ HP rules.
• Slowdown in the Malaysian economy affecting car sales.
• Slowdown in the Philippines economy affecting car sales.
• Global automotive supply chain disruption.

Forecast

We expect BAuto earnings to increase 15-20% for FY04/14 to FY04/16.

Valuation

Our fair value for BAuto is RM0.92, based on 11x FY04/15 PE, similar to average of 11x FY14 P/E for the automotive sector. However, we wish to caution investor on the potential low liquidity, given low free-float and low market capitalization.

Source: Hong Leong Investment Bank Research - 7 Nov 2013