FY16 core PATAMI of RM198.0m came above our estimate but within consensus at 107% and 101%, respectively. The positive deviation was mainly due to better-than-expected performance of its Mazda flagship models namely Mazda2, Mazda3 and CX-5 in both the domestic and Philippines markets. An interim dividend of 2.5 sen and special dividend of 7.5 sen were declared, yielding YTD net DPS to 16.9 sen which beat our FY16E DPS of 9.0 sen. Post-results, we upgraded our FY17E earnings by 9% taking into account higher vehicle sales assumptions. We maintain our OUTPERFORM call with an upgraded TP of RM2.62 from RM2.41 based on an unchanged targeted 12.4x PER.

FY16 results beat our estimate but was within consensus estimate, as the group reported a 12M16 PATAMI of RM198.0m, making up 107%/101% of our/consensus estimate. The positive deviation was mainly due to stronger earnings derived from strong sales driven by the better-than-expected reception of Mazda flagship models namely Mazda2, Mazda3 and CX-5 in both domestic and Philippines markets.

A surprise special dividend of 7.5 sen was declared together with an interim dividend of 2.5 sen, bringing YTD dividend payment to 16.9 sen. This aced our anticipated dividend of 9.0 sen due to the unexpected special dividend pay-out which resulted in a pay-out ratio of 98%. Excluding the special dividend, net dividend paid would have met our expectations.

YoY, group revenue grew by 15% YoY to RM2.1b in FY16 despite the double-digit growth in vehicle sales volume in both its Malaysia (+23% to 15.0k units) and Philippines (+32% to 4.7k units) operations. This was due to the difference in accounting treatment in FY16 where local sales were recorded net of GST. Nevertheless, the group’s sales trend bucked the overall weak TIV sales, driven by its flagship models namely the Mazda2 and Mazda3 in both the domestic and Philippines markets. Despite a commendable top line growth, group PATAMI deteriorated by 7% YoY to RM198.0m as margins were suppressed by unfavorable Japanese Yen rates and more intensive competition, resulting in higher operating expenditure.

QoQ, group sales grew slightly by 2.3% QoQ to RM534.7m, which we perceived to be decent amid the weak consumer sentiment as well as tighter financing conditions which dampened vehicle purchases. However, 4Q16 PATAMI was able to grow by 26% to RM51.6m as margins improved from better product mixes as well as higher level of operating expenses in 3Q16.

We remain optimistic with BJAUTO’s prospects as it appears to be the least affected by the macroeconomic headwinds in comparison to peers, on the back of: (i) targeted customer base (middle-income and high-income groups 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).

Post-results, we increase our FY17E NP by 9% in consideration of betterthan- expected sales as the Mazda brand is gaining more traction. In addition, we introduce our FY18E numbers in which we apply an average exchange rate assumption of RM3.60/100 JPY to account for the prevailing weakness in the MYR.

Maintain OUTPERFORM but upgrade our TP to RM2.62 (from RM2.41, previously) based on a revised FY17E EPS of 21.1 sen with an unchanged targeted 12.4x PER.

Source: Kenanga Research - 14 Jun 2016