Reported core PATMI of RM65.5m for 2QFY23 (+27.7% QoQ; +144.8% YoY) and RM116.9m for 1HFY23 (+204.4% YoY). The results were above HLIB expectation (56.2%) and consensus (63.1%), mainly due to stronger than expected sales volume and margins. Declared a second interim dividend of 3.5 sen/share (ex date: 22 Dec 2022). Raised earnings forecasts for FY23 by 25.2%, FY24 by 11.9% and FY25 by 10.3% following higher sales volume and margin assumptions. We maintain our BUY recommendation with a higher TP: RM2.35 (from RM2.05) based on 13x CY23 P/E. BAuto earnings are expected to sustain into 2HFY23, given the strong order backlogs.

Above expectations. Reported 2QFY23 core PATMI at RM65.5m (+27.7% QoQ, +144.8% YoY) and 1HFY23 at RM116.9m (+204.4% YoY). We deem the results above HLIB’s FY23 forecast (56.2%) and consensus (63.1%) due to stronger than expected sales volume and margins. We expect a stronger 2HFY23 as the group accelerates car productions and deliveries prior to the end of SST exemptions delivery by end Mar-23.

Dividend. Declared a second interim dividend of 3.5 sen/share (ex-date: 22 Dec 2022), bringing up YTD dividend to 6.5 sen/share.

QoQ. Core PATMI continued to improve QoQ by +27.7% to RM65.5m following ramping up of productions and deliveries in Malaysia operation as the country continued to recover since endemicity in April 2022. Margin improved slightly during the quarter, mainly driven by improved model sales mix. Associates contribution also improved from MMSB on higher volume and RM appreciation against JPY.

YoY/YTD. Core PATMI improved substantially by +144.8% YoY and +204.4% YTD due new sales contribution from Kia and Peugeot as well as low base effect in SPLY which was affected by various lockdown measures in both Malaysia and the Philippines.

Outlook. BAuto’s Malaysia operation is expected to sustain into 2HFY23 in tandem with the anticipated economic recovery, supported by the strong order-book of 8.5k units for Mazda, 300 units for Peugeot and 1.2k units for Kia. The still high order book is mainly driven by the group’s ongoing 5% SST exemption for CKD models and 2.5% for CBU models for new bookings in Malaysia until year end, as the group continues to benefit from the depreciated JPY against MYR. Upcoming model line up include Mazda CX-30 CKD, Peugeot Landtrek, Peugeot e-2008 EV, Kia Sportage, Kia Sorento, and Kia Carens. However, the Philippines market recovery seems to remain relatively slow despite the removal of lockdown restrictions.

Forecast. We raised earnings forecasts for FY23 by 25.2%, FY24 by 11.9% and FY25 by 10.3% following higher sales volume and margin assumptions.

Maintain BUY, TP: RM2.35. We maintain BUY recommendation on BAuto with a higher TP of RM2.35 (from 2.05), as we roll forward valuation into CY23 with 13x P/E (lowered from 14x due to expected slower market in CY23). BAuto has strong order book of 10k units with the exciting new model line-up. The group also has a healthy balance sheet position with net cash of RM483.4m (41.6 s/share) as of end 2QFY23.

Source: Hong Leong Investment Bank Research - 9 Dec 2022