Reported core PATMI of RM10.2m for 1QFY21 (+48.1% QoQ; -80.5% YoY), below HLIB expectation (6.5%) and consensus (6.8%), due to lower than expected operating margins and loss-making MMSB operation during the quarter (temporary suspended operation during MCO period). We expecting earnings rebound in upcoming quarters, following stronger sales driven by SST exemptions for Jun-Dec 2020. Upcoming new launches include new MX-30, new BT-50 and CX-30 ckd. Declared first interim dividend of 0.50sen/share (ex-date: 27 Oct 2020). Adjusted earnings lower by -27.0% for FY21 and -35.0% for FY22. We maintain our HOLD recommendation with lower TP: RM1.38 (from RM1.68) based on 14x P/E CY21. While results disappointed, BAuto’s balance sheet remained strong with net cash position of RM71.1m (6.1sen/share) and expected dividend payout of 7.0s/share for FY21, translating into 5.0% dividend yield.

Below expectations. Reported 1QFY21 core PATMI of RM10.2m (+48.1% QoQ, - 80.5% YoY), which only achieved 6.5% of HLIB FY21 forecast profit of RM155.9m and 6.8% of consensus RM149.8m. The result was below expectation, mainly dragged by lower than expected margins for Mazda sales and loss-making associate MMSB operation (temporary suspension of production during MCO period).

Dividend. Declared a first interim dividend of 0.5sen/share (ex-date: 27 Oct 2020).

QoQ. Core PATMI improved by 48.1% following higher sales volume of Malaysia operation, partially offset by higher interests expenses and attributed loss-making associate MMSB operation.

YoY. Core PATMI dropped by -80.5%, on lower group sales volume (-25.0%), higher finance expenses and attributed loss-making MMSB operation.

Outlook. BAuto’s Malaysia operation is expected to rebound strongly for the upcoming 2QFY21 and 3QFY21 quarters by leveraging on the implemented SST exemptions during the Jun-Dec 2020 period. On the other hand, Philippines near term outlook remains challenging due to implementation of GCQ (General Community Quarantine) to control the outbreak of Covid-19 in the country. Upcoming new model launches include MX30, BT-50 and CX-30 CKD.

Forecast. We adjusted lower earnings for FY21 and FY22 by -27.0% and -35.0% respectively. We also introduce FY23 earnings at RM168.5m.

Maintain HOLD, TP: RM1.38. We maintain HOLD recommendation on BAuto with lower TP of RM1.38 (from RM1.68), based on CY21 P/E of 14x. While results disappointed, BAuto has a healthy balance sheet position with net cash of RM71.1m (6.1s/share) as of end 1QFY21 and expected dividend payout of 7.0s/share for FY21 (indicative 5.0% yield).

Source: Hong Leong Investment Bank Research - 11 Sept 2020