Period  2Q15/1H15

Actual vs. Expectations Above expectations. The group reported 2Q15 net profit (NP) of RM57.5m (+108 YoY; +3% QoQ), bringing its 1H15 NP to RM113.6m (112%) which made up 61% and 53% of our, and the consensus, full-year NP forecasts, respectively.

 The positive deviation was due to higher-than-expected EBIT margin which was mainly helped by weaker Japanese Yen against Ringgit Malaysia (hedging at c.RM3.10/100 JPY against our expectation of avg. RM3.15/100 JPY in FY15.)

Dividends  As expected, a second interim single-tier dividend per share (DPS) of 3.25 sen was declared, bringing the YTD net DPS to 5.25 sen which implies 38% dividend payout ratio (DPR). We are expecting the group to declare a total net DPS of 9.6 sen (implies 40% DPR) in FY15.

Key Result Highlights YoY, the 1H15 revenue registered a robust growth of 3% on the back of higher vehicle sales in Malaysia as a result of good demand for its Mazda SkyActiv models such as CX-5, Mazda3 and Biante, and higher sales contribution from Berjaya Auto Philippines (BAP) underpinned by Mazda2 and Mazda3 models. Compounded by the higher margins arising from the favourable exchange rates (weaker JPY against MYR) as well as the higher share of results contributed by its associate company (+32%), PBT soared by 114%.

 QoQ, 2Q15 revenue remained flat (+0.2%) to register at RM508.8m despite lesser units sold due to the temporary shutdown of its contract assembler’s paint shop in October for upgrading works. Notwithstanding that, PBT improved by 6% on the back of higher PBT margin (+0.8ppts) mainly driven by favourable exchange rates (hedged at c.RM3.11 vs. 100JPY compared to c.RM3.18 vs.100JPY in the last quarter).

Outlook  BAuto's strong sales momentum in FY15E/FY16E (+35%/+20%) will be mainly underpinned by Mazda 3 CBU and CKD (c.23%-28% of total group’s sales), CX- 5 (c.40%-41% of total group’s sales in FY15-FY16) and the group’s upcoming attractive new model in the pipelines such as B-segment Mazda 2 (c.11% of total group’s sales in FY15-FY16), CX-3 SUV and MX-5.

 On the margin side, we expect it to be sustained and benefit from lower import duties from FTA with Japan, higher localisation and favourable exchange rates (with the huge exposure in Japanese Yen, which is currently on a weakening trend).

Change to Forecasts Post-results, we have increased our FY15E-FY16E NPs forecasts by 11-13% after updating our MYR/JPY assumptions from RM3.10-RM3.15/100JPY in both FY15E-FY16E to RM3.00-RM3.05/100JPY.

Rating Maintain OUTPERFORM

Valuation  Our TP has been increased marginally to RM4.29 (from RM3.82) based on a targeted 13x FY16 PER; a valuation which is broadly in line with peers.

Risks to Our Call   Lower-than-expected vehicle sales.

 Strengthening of JPY vs MYR.

Source: Kenanga