FY17 PATAMI of RM119.1m (-40%) came in below expectations at 84% and 86% of our and consensus estimates, respectively. The negative deviation was due to lower-than-expected car sales. Post results, we made a slight revision to our FY18E earnings forecast (-2%) and we introduced our earnings forecast for FY19E. As such, we lowered our target price to RM2.05 (from RM2.11, previously). Reiterate MARKET PERFORM.

Below expectations. The reported FY17 PATAMI of RM119.1m (- 40%) was below expectations at 84% of our forecast and 86% of consensus estimate. The negative deviation was due to lower-than- expected car sales. A fourth interim single-tier dividend of 3.15 sen was declared, bringing total DPS declared in FY17 to 11.69 sen (FY16: 16.90 sen), below our previous DPS forecast of 16.70 sen. Nonetheless, the dividend pay-out ratio was at astounding 113.8%, translating into yield of 5.8%.

YoY, FY17 revenue fell by 21% to RM1,659.5m as domestic division saw lower volume of car sales, declined by 30% to 10,569 units, due to lack of new model launches to attract buyers. Competition during this period was also highly intense due to new model launches by competitors, unlike the previous year. A similar effect was also experienced in the Philippines market (-11% to 4,167 units). In addition, EBIT registered at RM161.8m (-38%) with a lower EBIT margin of 10% (-2.8pts), due to the suppression from prolonged forex weakness towards JPY rates on operating expenses. Correspondingly, PATAMI declined by 40% to RM119.1m.

QoQ, 4Q17 sales was higher by 5% to RM354.0m, attributed to higher car sales from both operations (+10% to 3,212 units) with the increase in sales promotion activities and improvement in supply constrains issue for certain models. However, EBIT was lower by 30% to RM27.5m, with compressed EBIT margin of 8% (-3.7pts) attributed to the Mazda CX-5 2016 inventory clearing incentives promotion. Nonetheless, the negative impact was cushioned by higher associates at RM5.6m (3Q17: RM0.1m) and lower effective tax rate of 21% (3Q17: 27%). As result, PATAMI declined at a lower rate of 12% to RM 22.2m.

Outlook. While the weak set of results for FY17 was due to lower numbers of car sold, we believe the recent launches in 2017 series of Mazda MX-5 RF, face-lifted Mazda 3, Mazda CX-3 and Mazda 6, as well as expected launches of Mazda CX-5 2017 and Mazda CX-9 will reinvigorate market demand. All in, even with the weak car sales volumes, the earnings growth will be supported by: (i) high potential value to be unlocked with the proposed listing of its Philippines subsidiary where robust growth in its automotive market is anticipated, (ii) higher average selling price of c.4% for Mazda 2017 variants.

Post results, we made a slight revision to our FY18E earnings forecast (-2%) to RM193.2m and we introduced our earnings forecast for FY19E at RM206.4m.

As such, we lowered our target price to RM2.05 (from RM2.11, previously), based on target PER of 12.4x on FY18E EPS. Dividend yield of 7.9% on the back of sturdy balance sheet and strong operating cash flow should continue to provide support to the share price. Reiterate MARKET PERFORM.

Source: Kenanga Research - 14 Jun 2017