Reported core PATMI of RM6.9m for 4QFY20 (-73.0% QoQ; -88.6% YoY) and RM106.3m for FY20 (-60.1% YoY), below HLIB expectation (83.8%) and consensus (86.5%). This was affected by the implementation of MCO in Malaysia and ECQ in the Philippines during 4QFY20. Despite the results shortfall, we adjust earnings higher for FY21 and FY22 by 22.2% and 6.9% respectively, as we expect higher sales volume and margins following government’s implementation of sales tax exemptions for passenger cars from 15 Jun to 31 Dec 2020. Maintain HOLD recommendation with higher TP: RM1.68 (from RM1.05) based on higher 12x P/E (from 10x) on CY21 adjusted earnings.

Below expectations. Reported 4QFY20 core PATMI of RM6.9m (-73.0% QoQ, -88.6% YoY), bringing FY20 sum to RM106.3m (-60.1% YoY), as compared to HLIB FY20 forecast profit of RM126.8m (83.8%) and consensus RM122.9 (86.5%). The results were dragged by lower than expected group sales volume following implementation of Movement Control Order (MCO) in Malaysia since 18 March and Enhanced Community Quarantine (ECQ) in the Philippines since 17 March in a bid to control the outbreak of Covid-19 in these nations.

Dividend. Following the weak 4QFY20 result, affected by Covid-19, management does not recommend dividend for the quarter in order to conserve cash and meet on going operational liquidity. Total dividend declared for FY20 was 7.45sen/share.

QoQ & YoY. Core earnings declined 73.0% QoQ & 88.6% YoY following temporary operational cease during the implementation of MCO (Malaysia) and ECQ (the Philippines) since mid-March, affecting overall sales volume in 4QFY20.

YTD. Core PATMI dropped by 60.1% YTD, mainly due to high base year in FY19 on strong sales volume when government implemented GST holiday period (Jun-Aug 2018), and coupled with weak 2HFY20 sales as BAuto phased-off previous CX-5 model and operational cease during MCO and ECQ period.

Outlook. The recent outbreak of Covid-19 has severely affected the economy and consumer sentiments in Malaysia and Philippines as well as export market to Thailand. Malaysia Automotive Association has forecasted TIV to drop 33.8% in Malaysia while The Association of Vehicles Importers and Distribution has forecasted TIV to drop 40% in the Philippines. Nevertheless, we take some comfort on the Malaysia government implementing short term stimulus plan to support the economy, which includes full sales tax exemption for sales of local CKD units and 50% sales tax exemption for sales of imported CBU units from 15 Jun to 31 Dec 2020, potentially aiding automotive sales volume in a weakened consumer sentiment environment.

Forecast. Despite the results shortfall, we adjusted higher earnings for FY21-22 by 22.2% and 6.9% respectively, after imputing higher sales volume and overall margins, following Malaysia government’s implementation of sales tax exemptions for passenger cars from 15 Jun to 31 Dec 2020.

Maintain HOLD, TP: RM1.68. We maintain HOLD recommendation on BAuto with higher TP: RM1.68 (from RM1.05), following upgrade in earnings and higher targeted P/E of 12x (from 10x) on CY21 earnings, as outlook has improved for Malaysia operation with the implementation of sales tax exemption for the automotive sector. We note that BAuto has turned into net debt position of RM46.7m, following increase in inventory level due to no sales volume during the MCO period.

Source: Hong Leong Investment Bank Research - 12 Jun 2020