Reported a strong core PATMI of RM82.1m for 3QFY19, boosting 9MFY19 to RM205.8m, above our expectation and consensus. Malaysia operation is expected to be supported from the remaining backlog orders of CX-5 in 4QFY19. Attractive new model line-up for FY20 includes M3, CX-8 and CX-30, which will sustain BAuto’s earnings in FY20. Recommended third interim dividend of 4.5 sen/share. Maintain BUY with higher TP: RM3.08 (from RM2.70) based on unchanged 14x P/E CY20, as BAuto is also in a net cash position of RM451m (38.8 sen/share) with projected free cash-flow of RM150-240m p.a., supporting a sustainable dividend payout of 16-20 sen/share, translating into an attractive 7.0-9.0% yield.

Above expectation. Reported another record strong 3QFY19 core PATMI of RM82.1m, boosting 9MFY19 core PATMI to RM205.8m, which was above HLIB expectation (94.4%) and consensus (92.8%). The record PATMI was driven by strong Mazda sales deliveries in Malaysia operation.

Dividend. Recommended a third interim dividend of 4.5 sen/share for the quarter, increasing YTD dividend payout to 10.75 sen/share. We can expect continued high dividend payout in 4QFY19.

QoQ. Core PATMI jumped 11.4% on overall higher sales volume of Mazda models (see figure #3) in Malaysia market, which was partially offset by lower contribution from the Philippines operation.

YoY/YTD. Core PATMI jumped 123.9% YoY and 171.4% YTD respectively on significant Mazda sales growth in Malaysia market and higher contribution from associates MMSB and Inokom (on higher Mazda CX-5 production volume), which were partially offset by Mazda sales decline in the Philippines market.

Outlook. BAuto Malaysia operation is expected to be supported by the remaining backlog orders of CX-5 (since Jun-Aug 2018) and support from the facelift CX-3 and M6 in 4QFY19. On the other hand, Philippines near term outlook remains challenging due to implementation of TRAIN tax reform before potential recovery in FY20-21. New attractive model line for FY20 includes CBU M3 (Jun 2019), CKD CX-8 (Aug 2019) and CBU CX-30 (2QFY20), which are expected to continue support BAuto’s sales volume in FY20.

Forecast. Adjusted upwards our earnings projection for FY19 by 16.8%, FY20 by 6.5% and FY21 by 2.5%, following the higher than expected group sales volume, margins and contribution from associates.

Maintain BUY, TP: RM3.08. We maintain BUY recommendation on BAuto with higher TP of RM3.08 (from RM2.70), based on unchanged CY20 P/E of 14x, supported by: (i) healthy balance sheet with net cash position of RM451m (38.8 sen/share); (ii) attractive new model line up to sustain sales momentum, generating strong cash flow; and (iii) high dividend yield of 7.0-9.0%.

Source: Hong Leong Investment Bank Research - 14 Mar 2019