FY19 PATAMI of RM265.3m (+90%) came in above both our/consensus expectations, at 105% of full-year estimates, due to stronger-than-expected margin. As such, we increased our FY20E CNP by 4%. Reiterate OP with a higher TP of RM3.00 (from RM2.85) based on 13x CY20E EPS (rollover from CY19E EPS). DPS of 10.5 sen declared for the quarter, bringing FY19 DPS to 21.25 sen, the highest so far, implying a dividend yield of 8.9%.

FY19 above expectations. FY19 PATAMI of RM265.3m (+90%) came in above both our/consensus expectation, at 105% of full-year estimates, due to stronger-than-expected margin. A 4th interim DPS of 3.5 sen and a special DPS of 7.0 sen were declared for the quarter, bringing FY19 DPS to 21.25 sen (FY18: 10.40 sen), implying a dividend yield of 8.9% and dividend pay-out of 93%, which is above our conservative expectation of 17.2 sen.

YoY, FY19 PATAMI surged 90% mainly driven by: (i) expansion in PBT margin by 3.8ppt to 13.7% from 9.9% in FY18 from the ending of the old Mazda CX-5 run-out programme, (ii) higher revenue (+25%) attributed to the higher total car sales at 19,004 units (+15%), (iii) higher associates (+134%) from the higher production volume of the allnew CX-5, and (iv) lower effective tax rate at 21.7% (FY18: 23.4 %). Specifically, local car sales volume was higher at 15,844 units (+40%) buoyed by the zero-rated tax holiday discount period and the all-new CX-5 which contributed 68% to local unit sales. However, this was partly offset by a drop in sales volume from the Philippines operation to 3,160 units (-39%) subsequent to the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law.

QoQ, 4Q19 PATAMI plunged 26% mainly due to lower revenue (-31%), attributed to: (i) lower total car sales at 3,926 units (-35%), after fulfilling back-orders from zero-rated tax discount period in the previous quarter for the local market (-35%), (ii) a drop in Philippines' sales volume (- 37%), (iii) weaker associates (-55%) from the lower production volume of the all-new CX-5, and (iv) higher effective tax rate at 22.4% (3Q19: 20.6%). This, however, was cushioned by expansion in PBT margin by 1.2ppt to 14.4% from 13.2% in 3Q19 from higher margin sales of the all-new CX-5 (70% of 4Q unit sales).

Outlook. For CY18, BAUTO has launched the face-lifted Mazda CX-3 and face-lifted Mazda 6 (CBU). For CY19, BAUTO will introduce the allnew Mazda 3 SkyActivX in end-2QCY19, all-new Mazda CX-8 (CKD), and all-new Mazda CX-30 (CBU) in 2HCY19. Elsewhere, in the Philippines, the TRAIN law is affecting the demand for motor vehicles, but BAuto plans to preserve its sales volume by increasing its Philippines dealerships and introducing the all-new Mazda CX-8 which they expect to attract huge demand over there.

We increased our FY20E CNP by 4% to reflect the stronger-thanexpected margin. We also introduced FY21E CNP at RM272.5m.

Reiterate OUTPERFORM with a higher TP of RM3.00 (from RM2.85) as we roll over our valuation year to CY20E (from CY19E) on unchanged PER of 13x, at -0.5SD of its 3-year forward historical mean PER. We like BAUTO for its: (i) superior margins, above-industry margin (average profit margin of c.10% vs. peers of c.4%), (ii) steady dividend yield at 8%, and (iii) upcoming new models for the local and export market to sustain sales volume. Maintain OUTPERFORM.

Risks to our call include: (i) lower-than-expected car sales volume, and (ii) unfavourable forex.

Source: Kenanga Research - 13 Jun 2019