Reported core PATMI of RM51.3m for 1QFY23 (-36.5% QoQ; +341.8% YoY). The results were within HLIB expectation (24.7%), but above consensus (28.7%). Declared first interim dividend of 3.0 sen/share. We maintain our BUY recommendation with unchanged TP: RM2.05 based on 14x CY22 P/E. BAuto earnings are expected to sustain for the remaining FY23, given its strong order backlogs and anticipated recovery of both Malaysia and Philippines economy, alongside a weakened JPY. The group has a net cash of RM462.1m (39.8 sen/share).

Within expectation. Reported 1QFY23 core PATMI at RM51.3m (-36.5% QoQ, +341.8% YoY), within HLIB’s FY23 forecast of RM208.0m (24.7%), but above consensus’ RM178.6m (28.7%). The group recorded net EIs of -RM1.2m during the quarter, mainly on forex loss and provisions, which were partially offset by gain on derivatives.

Dividend. Declared first interim dividend of 3.0 sen/share (ex-date: 13 Oct 2022).

QoQ. Core PATMI declined by -36.5% to RM51.3m mainly due to lower sales and margins from Malaysia Mazda operation on lower CKD sales volume (see Figure #6) and contribution from associates (lower production volume).

YoY. Core PATMI improved by +341.8% on higher group sales volume and margins from: (i) existing Malaysia Mazda and Philippines Mazda operations; (ii) new contributions from Malaysia Peugeot and Kia distributorships; and (iii) turnaround of associates’ contributions. Recall that overall operations were affected by lockdowns in SPLY.

Outlook. BAuto’s Malaysia operation is expected to sustain for the remaining of FY23 in line with the anticipated strong Malaysia economic recovery, supported by the strong order backlogs of 8,500 units for Mazda, 500 units for Peugeot and 1,000 units for Kia. Currently the group is extending a 5% SST exemption for CKD models and 2.5% for CBU models, as part of group’s strategy to sustain its overall new sales orders post government’s ending of SST exemptions measures since end Jun 2022. BAuto is currently benefitting from the depreciated JPY against MYR. Similarly, the Philippines operation is also experiencing a strong recovery following the removal of lockdown restrictions, allowing economic activities to operate at full capacity again. BAP recorded a strong PBT of RM7.1m for the quarter driven by lower operational costs and appreciation of PHP against JPY.

Forecast. Unchanged for FY23 and FY24. Introduced FY25 earnings at RM226m.

Maintain BUY, TP: RM2.05. We maintain BUY recommendation on BAuto with unchanged TP of RM2.05, based on CY22 P/E of 14x. BAuto has a strong orderbook with attractive new model line-ups. The group also has a healthy balance sheet position with net cash of RM462.1m (39.8 sen/share) as of end 1QFY23.

Source: Hong Leong Investment Bank Research - 13 Sept 2022