Reported core PATMI of RM25.3m for 2QFY21 (+232.5% QoQ; +18.3% YoY) and RM32.9m for 1HFY21 (-55.4% YoY), below HLIB expectation (28.9%) and consensus (27.5%), due to lower than expected operating margins and lossmaking MMSB operation. Declared second interim dividend of 1.25sen/share (ex-date: 15 Jan 2021). Adjusted our earnings by -20.0% for FY21, +33.7% for FY22 and +1.7% for FY23. We maintain our HOLD recommendation with lower TP: RM1.35 (from RM1.38) based on unchanged 14x P/E CY21. While results disappointed, BAuto’s balance sheet remained healthy with net cash position of RM226.1m (19.5sen/share).

Below expectations. Reported 2QFY21 core PATMI at RM25.3m (+232.5% QoQ, +18.3% YoY) and 1HFY21 at RM32.9m (-55.4% YoY), achieved 28.9% of HLIB FY21 forecast and 27.5% of consensus. The result was below expectations, mainly dragged by lower than expected margins for Mazda sales and loss-making associate MMSB operation (temporary suspension of production during MCO period and limited supply of CKD packs during the quarter).

Dividend. Declared a first interim dividend of 1.25sen/share (ex-date: 15 Jan 2021), added total dividend to 1.75sen/share in 1HFY21.

QoQ. Core PATMI improved by +232.5%, following higher sales volume in Malaysia (benefit from SST exemptions) and Philippines as both countries loosened the restricted movement control orders during the quarter, with higher net contributions from associates (MMSB and Inokom).

YoY. Core PATMI improved by +18.3%, mainly on higher Malaysia sales volume, which was partially offset by higher net interest costs, lower net associate contributions.

YTD. Core PATMI declined by -55.4% YoY, dragged by deteriorated car sales mix (on lower margin CBU models in Malaysia), higher provisions for warranty and free services for Malaysia operation and loss-making Philippines operation and MMSB.

Outlook. BAuto’s Malaysia operation will continue to leverage on the SST exemptions until Dec 2020 while MMSB is expected to turnaround with the availability of CKD packs since Oct month. 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. The recent appointment of 20% owned Berjaya Auto Alliance as Peugeot marque distributorship in Malaysia is expected to have marginal contribution to the group. Furthermore, BAuto is also believed to be the front-runner to secure the distributorship for Kia marque in Malaysia.

Forecast. We adjusted lower earnings for FY21 by -20.0%, but adjusted higher FY22- 23 earnings by +33.7% and +1.7% accounting for higher assumed group sales volume and margins as well as higher associates contribution.

Maintain HOLD, TP: RM1.35. We maintain HOLD recommendation on BAuto with lower TP of RM1.35 (from RM1.38), based on unchanged CY21 P/E of 14x. While results disappointed, BAuto has a healthy balance sheet position with net cash of RM226.1m (19.5s/share) as of end 2QFY21.

Source: Hong Leong Investment Bank Research - 11 Dec 2020