Reported core PATMI of RM26.8m for 2QFY22 (+130.5% QoQ; +5.9% YoY) and RM38.4m for 1HFY22 (+16.7% YoY). We deem the result above HLIB expectation (29.4%) and consensus (29.4%) as we anticipate earnings rebound in 2HFY22 following stronger sales driven by the extended SST exemptions and transition to Phase 4 NRP in Malaysia and also economic reopening in Philippines. Declared 2nd interim dividend of 1.50 sen/share (ex-date: 12 Jan 2022). Adjusted earnings by +14.5% for FY22, -16.0% for FY23 and -2.0% for FY24. We maintain our BUY recommendation with unchanged TP: RM1.80 based on 13x P/E CY22.

Above expectations. Reported 2QFY22 core PATMI at RM26.8m (+130.5% QoQ, +5.9% YoY) and 1HFY22 at RM38.4m (+16.7% YoY). This achieved 29.4% of HLIB FY22 forecast and consensus which we deem the above expectations, even after accounting for weaker contribution during the lockdown period, as we anticipate stronger car sales in 2HFY22, as Malaysia progresses into Phase 4 of National Recovery Plan (NRP) and consumers take advantage of the extended SST exemptions till end Jun-2022.

Dividend. Declared second interim dividend of 1.5sen/share (ex-date: 12 Jan 2022), bringing up YTD dividend to 2.0sen/share.

QoQ. Core PATMI improved by +130.5% to RM26.8m following higher group sales volume in Malaysia operation as the country transitioned into Phase 2 and 3 of NRP during the quarter and allowed the automotive sector to commence operations again (after strict lockdown measures in previous quarter).

YoY/YTD. Despite lower group revenue (lower sales volume), core PATMI improved by +5.9% YoY and +16.7% YTD, on improved margins driven by on-going strict cost control measures and revision of warranty and free after-sales service campaigns by end CY21, as well as higher associate contribution.

Outlook. BAuto’s Malaysia operation is expected to rebound strongly in 2HFY22 by leveraging on the extended SST exemptions until Jun 2022. The current outstanding orders for Mazda marque is c. 2.0k units, indicative of 1.5-2.0 months delivery backlog. Malaysia operation is also expected to leverage onto the newly launched Peugeot 3008 facelift and 5008 facelift (upcoming new 2008) and Kia marque for growth in 2022. Similarly, Philippines market is also expected to recover as Covid-19 cases subside to a manageable level. The government has eased the quarantine requirements and is providing assistance to businesses to regain traction.

Forecast. Following recent Budget announcement on further extended SST exemption to Jun 2022 in Malaysia and the ease of quarantine restrictions in the Philippines, we adjusted upward FY22 profits by +14.5%, but lowered FY23 by -16.0% and FY24 by -2.0%.

Maintain BUY, TP: RM1.80. We maintain BUY recommendation on BAuto with unchanged TP of RM1.80, based on CY22 P/E of 13x. BAuto has a healthy balance sheet position with net cash of RM279.8m (24.1s/share) as of end 2QFY22 and expected dividend payout of 6.75s/share for FY22 (indicative 4.5% yield).

Source: Hong Leong Investment Bank Research - 14 Dec 2021