1Q17 NP of RM41.1m was below expectations due to delay in vehicle delivery and adverse forex translation. A 3.0 sen dividend was declared, broadly within expectation. We believe BAP’s proposed listing in the Philippines could allow the group to monetize its value given the robust TIV sales growth. Postresults, we cut our FY17E/FY18E NP by 28%/5% in lieu of weaker MYR assumptions. Maintain OP with a higher TP of RM2.67 (from RM2.62) as we roll over our valuation year to FY18.

1Q17 results were below estimates, as the group reported a PATAMI of RM41.1m, making up of 17%/19% of our/consensus estimates. The negative deviation was mainly due to delayed vehicle deliveries (of which the contract assembler’s plant in Kulim was shut down for about five weeks for upgrading works of its paint shop). In addition, margins were also compressed as a weaker ringgit gave rise to higher operating expenses. A 3.0 sen dividend declared was broadly within our expectation. We expect the group to pay a total net DPS of 14.0 sen.

YoY, 1Q17 revenue only declined by 4% to RM493.6m despite the weaker domestic unit sales (-39% to 1.2k) which was caused by supply constraints on certain models due to upgrading works of its contract assembler’s paint shop, as this was buffered by favourable product mix. Meanwhile on the Philippines market, its 60.4% owned subsidiary BAP was able to register flattish unit sales (-1% to 1.0k units) despite the entry of a new model launched by a competitor into the market. At the bottom line, the group’s PATAMI margins eroded 1.9 pts to 8% as increasing weakness of the Ringgit against the Japanese Yen led to higher operating expenses. As a result, the group’s PATAMI of RM41.1m was 21% weaker.

QoQ, top line dipped by 8% owing to the decline in unit sales for both the Malaysian and Philippines markets. The poorer revenue was a result of dampening consumer sentiment as well as slower vehicle delivery and sales recognition with the temporary closure of a contract assembler’s plant. Group net earnings fell 20% on the back of higher selling costs from unfavorable forex rates and higher marketing expenses in the Philippines market. (Note: Please refer to the overleaf for comments on the proposed listing of BAP.)

While the current environment appears trying with the slower-thanexpected recovery in consumer sentiment, we maintain our positive stance on 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, while we made no changes to our FY17E and FY18E unit sales estimates as we believe sales will pick up after the temporary closure of contract assembler’s paint shop episode, and we revise our average exchange rate assumption of FY17E: RM3.40/100 JPY and FY18E: RM3.60/100 JPY to RM3.80/100 JPY in lieu of the slower-than-expected recovery of the Ringgit. This resulted in a -28%/-4% revision in our FY17E/FY18E net earnings.

Maintain OUTPERFORM but upgrade our TP to RM2.67 (from RM2.62, previously) as we roll over our valuation base year to FY18E EPS of 21.5 sen on our unchanged targeted of 12.4x PER.

Source: Kenanga Research - 9 Sep 2016