Reported core PATMI of RM64.4m for 4QFY21 (+91.9% QoQ; +831.7% YoY) and RM130.8m for FY21 (+23.1% YoY), above HLIB’s expectation (127.3%) and consensus (136.5%), driven by recovery in margins from lower provisions (reversion to 5+5 program from 6+6), reversal of incentives and RM appreciation against JPY. BAuto will continue to leverage onto the extended SST exemptions till 31 Dec 2021 for the Malaysia operation. Declared fourth interim dividend of 1.5sen/share and special dividend of 1.75sen/share (both ex-date: 14 Jul 2021). Post rolling forward our valuation into CY22, we upgrade our recommendation to BUY with higher TP of RM1.75 (from RM1.40) based on 13x P/E CY22. BAuto’s balance sheet remains healthy with net cash position of RM455.6m (39.2sen/share).

Above expectations. Reported 4QFY21 core PATMI at RM64.4m (+91.9% QoQ, +831.7% YoY), boosting FY21 sum to RM130.8m (+23.1% YoY), which was above HLIB’s FY21 forecast (127.3%) and consensus (136.5%), mainly driven by better than-expected Malaysia operational margins, following reversion to 5+5 (warranty + free services) campaign effective Jan 2021 from 6+6 campaign, RM appreciation against JPY (for CBU models) and reversal of incentives. BAASB (Peugeot) remained profitable with RM193k on the back of sales of 196 units.

Dividend. Declared a fourth interim dividend of 1.5 sen/share and a special dividend of 1.75 sen (both ex-date: 14 Jul 2021), bringing total dividend to 6.5 sen/share in FY21, yielding 4.4%.

QoQ. Despite flattish sales volume, core PATMI improved by 91.9%, mainly driven by a combination of: 1) improved sales mix from CBU models; 2) full quarter advantage of normalisation 5+5 campaign (from 6+6); 3) RM appreciation against JPY; 4) reversal of incentives; 5) higher associate contribution from MMSB (partially offset by lower contribution from Inokom).

YoY. Core PATMI surged by more than 8x, mainly due low base effect following implementation MCO 1.0 in SPLY.

YTD. Core PATMI improved by 23.1% YoY, mainly due to higher sales volume in Malaysia following implementation of SST exemptions since Jun 2020 (1QFY21).

Outlook. Despite the implementation of strict of FMCO measures in Jun 2021, BAuto’s Malaysia operation is expected to remain favourable by leveraging onto the SST exemptions until 31 Dec 2021. On the other hand, Philippines near term outlook remains challenging due to ongoing GCQ (General Community Quarantine) to control the outbreak of Covid-19 in the country. The commencement of vaccination program in Malaysia and the Philippines may improve market sentiment towards end-CY21. Management guided cautious outlook for FY22, due to the unpredictable course of Covid-19. Attractive new launches for Mazda, Kia and Peugeot are under discussion, however actual launches have been guided to be dependent on market sentiments and economic conditions.

Forecast. Unchanged.

Upgrade to BUY, TP: RM1.75. We upgrade to BUY recommendation on BAuto with higher TP of RM1.75 (from RM1.40), post rolling forward valuation into CY22 P/E of 13x. BAuto has been building up a healthy balance sheet position with net cash of RM455.6m (39.2s/share) as of end FY21.

Source: Hong Leong Investment Bank Research - 21 Jun 2021