Reported core PATMI of RM87.8m for 3QFY23 (+33.9% QoQ; +115.8% YoY) and RM204.6m for 9MFY23 (+158.9% YoY). The results were above HLIB expectation (78.7%) and consensus (95.0%), mainly due to stronger than expected sales volume and margins. Declared a third interim dividend of 4.5 sen/share (ex-date: 17 Apr 2023). Raised earnings forecasts for FY23 by 3.7%, FY24 by 4.2% and FY25 by 5.8% following higher sales volume and margin assumptions. We maintain our BUY recommendation with a higher TP: RM2.60 (from RM2.35) based on 14x CY23 P/E. BAuto earnings are expected to sustain into 1HFY24, given the strong order backlogs.

Above expectations. Reported record high 3QFY23 core PATMI at RM87.8m (+33.9% QoQ; +115.8% YoY), accelerating 9MFY23 to RM204.6m (+158.9% YoY). We deem the results above HLIB’s FY23 forecast (78.7%) and consensus (95.0%) due to stronger than expected sales volume and margins. We expect a continued strong 4QFY23 as the group accelerates car productions and deliveries prior to the end of SST exemptions delivery by end Mar-23.

Dividend. Declared a third interim dividend of 4.5 sen/share (ex-date: 17 Apr 2023), bringing up YTD dividend to 11.0 sen/share.

QoQ. Core PATMI continued to improve QoQ by +33.9% to RM87.8m following ramping up of productions and deliveries of Mazda and Kia in Malaysia prior to ending of SST exemption scheme by end Mar 2023. EBITDA margin was relatively flattish while the higher associates’ contribution (mainly MMSB on higher production for both domestic and export markets) had further improved PATMI margin.

YoY/YTD. Core PATMI improved substantially by +115.8% YoY and +158.9% YTD mainly due to low base SPLY (affected by various lockdown measures in both Malaysia and the Philippines) for Mazda as well as new contribution from Kia and Peugeot distributorship.

Outlook. BAuto’s Malaysia operation is expected to sustain into 1HFY24, backed mainly by the strong order-book of 6.8k units for Mazda, 250 units for Peugeot and 400 units for Kia. The still high order-book is mainly driven by the group’s ongoing promotional campaign of absorbing 5% SST exemption for CKD models and 2.5% for CBU models for new bookings in Malaysia (ended Dec 2022) as well as attractive new model launches. Management expects to offset the higher cost with ongoing cost efficiency programs and appreciated MYR against JPY. The group has recently launched CX-30 CKD model and Kia Sorento. Upcoming model line-up include Peugeot Landtrek, Peugeot e-2008 EV, Kia Sportage and Kia Carens. However, the Philippines market recovery seems to be relatively slow despite the removal of lockdown restrictions since earlier part of 2022.

Forecast. We raised earnings forecasts for FY23 by 3.7%, FY24 by 4.2% and FY25 by 5.8% following higher sales volume and margin assumptions.

Maintain BUY, TP: RM2.60. We maintain BUY recommendation on BAuto with a higher TP of RM2.60 (from 2.35), as we raise our earnings with a higher 14x P/E (from 13x on stronger expectations of sales sustainability). BAuto has strong order book of over 7k units. The group also has a healthy balance sheet position with net cash of RM427.7m (36.8 sen/share) as of end 3QFY23.

Source: Hong Leong Investment Bank Research - 14 Mar 2023