Period

3Q16/9M16

Actual vs. Expectations

Marginally below expectations. The group reported 3Q16 net profit (NP) of RM41.1m (-12% YoY; -23% QoQ), bringing 9M16 NP to RM146.4m (-9%) which made up 69% and 67% of our and the consensus’ full-year NP forecasts, respectively.

The main negative deviations were due to (i) unfavourable model mix (lower sales of higher margins models) as well as (ii) higher-than-expected import costs as a result of adverse currency translation (note that the group’s 3Q16 effective forex rate for MYR/100JPY weakened by 4% QoQ to RM3.30/100JPY.)

Dividends

Below expectations. A third interim single-tier dividend per share (DPS) of 2.15 sen was declared, bringing 9M16 DPS to 6.90 sen which implied a 54% dividend payout ratio (DPR). We were previously expecting the group to pay a total DPS of 10.3 sen (c.56% DPR) with third interim single-tier DPS assumption of 2.50 sen. Key Result

Highlights

YoY, 9M16 revenue grew 12% despite the double-digit growth of vehicle sales volume seen in both Malaysia (+26% to 11.5k units) and Philippines (+30% to 3.6k units) operations. This was mainly due to the different accounting treatment of revenue (whereby its sales is now recorded net of GST) coupled with unfavourable sales mix dominated by both its competitively priced B and C segment’s flagship models namely Mazda2 and Mazda 3. However, at the EBIT level (-10%), margin shrank by 3.0ppts to 12.2% owing mainly to unfavourable sales mix and higher advertising and promotion (A&P) expenses amid stiff competitive environment.

QoQ, 2Q16 revenue decreased by a marginal 4% owing to lower sale volume in Malaysia (-4% to 3.7k units) and Philippines (-1% to 1.3k units). However, PATAMI dropped by a higher quantum of 23% as a result of higher import costs (the group’s 3Q16 effective forex rate for MYR/100JPY weakened by 4% QoQ to RM3.30/ 100JPY) and unfavourable model mix (due to the lower sales of soon-to-be phased out higher margin CX-5 model; -27%).

Outlook

Among all the automotive counters that we cover, we still see Berjaya Auto to be the least affected by the macroeconomic headwinds buffered by: (i) its targeted customer base (middle-income to high-income group that are less sensitive to the rising cost of living), (ii) relatively stable margins, benefiting from the lower import duties from FTA with Japan, and (iii) attractive new model such as CX3-CKD, face-lifted CX5, 2x2 Turbo CX5 (Diesel) and Mazda 6 (Diesel).

Change to Forecasts

Post-results, we lowered our FY16/FY17E NP by 13%/9% to account for changes in model mix assumption as well as revised average MYR/100 JPY assumption of RM3.29/100 JPY (from RM3.20/100 JPY) for FY16. Meanwhile, we keep our MYR/100 JPY assumption of RM3.40/100 JPY for FY17E.

Rating

Maintain OUTPERFORM as we see undemanding valuation at this level (trading at a forward 11.3x FY17 PER, a steep 21% discount from the industry average forward PER of 14.3x) coupled with a pipeline of attractive model launching in FY17.

Valuation

Our TP has been lowered to RM2.41 from RM2.63 based on an unchanged targeted PER of 12.4x which is also close to its 2-year average forward PER.

Risks to Our Call

Lower-than-expected vehicle sales.

Weakening of MYR vs JPY.

Source: Kenanga Research - 14 Mar 2016