News

In a Bursa announcement, Berjaya Corporation (BJCORP) announced that its wholly-owned subsidiary, Berjaya Group (BJGROUP) has entered into a MoU with certain key management of BJAUTO on the proposed disposal-cum-injection of up to c.31.9% equity interest in BJAUTO into a SPV for a total value up to RM766.8m or at RM2.10 per BJAUTO share.

Upon completion of the Proposed Disposal, the SPV, controlled by the BJAUTO Management, will have up to 31.9% stake in BJAUTO and will manage BJAUTO and its group of companies. The enlarged issued and paid-up share capital of SPV will be c.RM360.7m.

BJGROUP will cease to be a direct shareholder of BJAUTO and will only hold 33.3% stake in the SPV pursuant to the Proposed Disposal.

Comments

While this does not present any impact on BJAUTO’s fundamentals and earnings at least in the near term, we are POSITIVE on the news as this exercise could remove an overhang on the share price performance where positive knee-jerk reaction could be reflected in the share price.

We also view that the above proposal will result in greater involvement in the future corporate group developments by the existing management of BJAUTO.

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 highincome 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, CX5 facelifted, 2x2 Turbo CX5 (Diesel) and Mazda 6 (Diesel).

Forecast

We made no changes to our FY16E-FY17E earnings.

Rating

Maintain OUTPERFORM as we see undemanding valuation at this level (trading at a forward 11.0x FY17 PER, a steep 26% discount from the industry average forward PER of 14.8x) coupled with a pipeline of attractive model launchings in FY17.

Valuation

Our TP of RM2.41 remained unchanged. This is 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.

Adverse currency fluctuations

Source: Kenanga Research - 13 Apr 2016