• Bauto’s 1QFY21 core net profit plunged by 80% yoy to RM10m on lower revenue, margins and losses from 30% owned Mazda Malaysia SB (MMSB).
• 1QFY21 results were better sequentially, but overall 1QFY21 results were below street and our expectations.
• We cut our FY21-23E EPS forecasts by 8-17% and lower our price target to RM1.35 (from RM1.50). Maintain Hold. At 15x FY21E PER, valuation looks fair.

1QFY21 core net profit fell by 80% yoy, below expectations

Bauto reported a weak set of results – 1QFY21 core net profit dived by 80% yoy to RM10m due to i) weaker revenue, ii) weaker EBITDA margins and iii) losses from associates. Bauto’s 1QFY21 revenue declined by 16% yoy to RM449m on weaker Mazda sales volume from both domestic and the Philippines operations. The subdued Mazda sales also resulted in a loss at associates in 1QFY21 of RM2m (vs 1QFY20 associates contribution of RM9m). In addition, 1QFY21 EBITDA margins had contracted by 6.3 ppts yoy to 4.6%, impacted by lower revenue, higher operating cost incurred during the lockdowns and aggressive promotional campaigns. Overall, results were below street and our expectations – 1QFY21 core net profit only accounted for 7- 8% of respective full-year profit forecasts. The variance against our forecasts was mainly due to lower-than-expected EBITDA margins and weaker-than-expected associates contribution.

Sequentially higher on low-base effect

Bauto’s 1QFY21 core earnings improved by 48% qoq to RM10m from the lockdown easing and cheaper car prices from the sales and service tax (SST) exemption. Recall, 4QFY20 core net profit of RM7m was at its weakest since 3QFY13, as half of the quarter was impacted by the Covid-19 Movement Control Order (from 18th Mar-12th May). Moving ahead, earnings improvement should follow as Malaysians have gradually warmed up to the cheaper price tags resulting from the SST exemption announcement and extended service maintenance for Mazda cars. We gather that bookings of Mazda cars have also improved to c.2k units. EBITDA margins is also expected to normalise as sales volumes pick up and better cost control measures; Bauto’s EBITDA margin ranged between 8%-18% in FY15-19, before the car pricing approvals issue and production disruption from MCO incidents occurred. Elsewhere, Bauto declared a lower 0.5-sen interim dividend for 1QFY21 (vs. 1QFY20: 3.25-sen).

Maintain Hold with a lower TP of RM1.35

We cut Bauto’s FY21-23E earnings forecasts by 8-17% after incorporating: (i) the weaker-than-expected 1QFY21 results, ii) lower EBITDA margins of 7-10% (vs previous forecast of 8-11%), and iii) lower contribution from associates. In tandem, we lower our 12-month TP to RM1.35 (from RM1.50). At 15x FY21E PER, valuation looks fair, considering the flat EPS growth in FY21E.

Source: Affin Hwang Research - 11 Sept 2020