BAuto is investing RM23.25m into 65% stake in Kia distributorship and 33.3% stake in Kia assembling. We are relatively positive on the exercise as BAuto will be able to enlarge and diversify its product portfolio. However, we do not anticipate material contribution from the investment in the near term due to gestation period needed to build up the brand image and demand for Kia. We maintain our HOLD recommendation with unchanged TP: RM1.40 based on 14x P/E CY21.

NEWSBREAK

BAuto has announced to invest RM3.25m for a 65% stake (35% owned by existing marque promoters) in Dinamikjaya Motors (“DJMSB”) and RM20m for a 33.3% stake (66.7% owned by Kia Motors Corporation, Korea) in Kia Malaysia (KMSB). DJMSB holds the right to distribute and sell Kia vehicles (CKD and CBU), sale of genuine parts as well as in the provision of after-sales service and to build Kia’s brand. BAuto will fund the investment from its internal generated funds.

HLIB’s VIEW

Positive. We are relatively positive on the investment, which will enlarge and diversify the group’s product offering. Based on MAA statistics, Kia sales volume was c. 3-5k units p.a. (prior to 2020). Naza Kia Malaysia (existing distributor of Kia) registered PATMI of RM80k in 2018 and LATMI -RM208m in 2019 (likely due to severe impairments). We understand that BAuto will implement a similar Mazda business model for the new Kia, where BAuto will take charge of the distributorship in Malaysia and taking a minority stake (and marque owner taking majority stake) in the assembling segment of CKD models with targeted export market. However, we do not expect material contribution from the new investment in the near term, as we anticipate a gestation period needed to build up the brand image and demand for Kia in Malaysia. 

Forecast. Unchanged, as we do not expect material contribution/impact from the new investment.

Maintain HOLD, TP: RM1.40. We maintain HOLD recommendation on BAuto with unchanged TP of RM1.40, based on CY21 P/E of 14x. BAuto has a healthy balance sheet position with net cash of RM454.0m (39.1s/share) as of end 3QFY21.

Source: Hong Leong Investment Bank Research - 2 Apr 2021