Bauto has acquired additional 35% stake in BAASB, making it a 55% subsidiary. Despite the business consolidation, we are relatively neutral on the exercise as the contribution from BAASB is likely to be immaterial. We maintain our HOLD recommendation with unchanged TP: RM1.40 (14x CY21 PE).

NEWSBREAK

BAuto has acquired an additional 35% stake (from Berjaya Corporation, “BCorp”) in Berjaya Auto Alliance (“BAASB”), the sole distributorship of new vehicles under the Peugeot marque and the rights to aftersales and spare parts distribution for the Peugeot, Citroen and DS marque vehicles in Malaysia. The acquisition consideration was RM4.58m, based on the unaudited NAV of BAASB at end FY04/21. Following the exercise, BAASB has become 55% subsidiary of BAuto (from 20% associate).

HLIB’s VIEW

Neutral. We are relatively neutral on the exercise. While the exercise allows BAuto to consolidate the operation of BASSB, we do not expect material contribution/impact from BAASB. During previous 3QFY21 results, BAuto recognised a maiden contribution of RM32k from then 20% stake in BAASB (effective Jan 2021). We expect a long gestation period for BAASB to build up Peugeot’s branding while the overall market has become more competitive with the strong emergence of national marque, Proton.

Future implication. We understand the current exercise was due to BCorp’s ongoing restructuring exercise, to dispose non-core assets, which include automotive segment. A quick browse through of BCorp’s automotive assets (see Figure #1), we believe BAuto may be interested to acquire BCorp’s 25.5% stake in BAP.

Forecast. Unchanged, as we do not expect material contribution/impact from BAASB.

Maintain HOLD, TP: RM1.40. We maintain HOLD recommendation on BAuto with unchanged TP of RM1.40, based on unchanged CY21 P/E of 14x. Despite the weak 9MFY21 results, 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 - 9 Jun 2021