BAUTO’s 1QFY23 results met expectations with its core PATAMI almost quadrupling YoY driven by robust demand for Mazda, Peugeot and Kia vehicles, and a higher blended margin with its product mix skewed towards the highmargin models, and cheaper costs of imported inputs with the strengthening of the MYR against JPY. We like BAUTO for its premium mid-market Mazda brand. We maintain our forecasts, TP of RM2.30 and OUTPERFORM call.

1QFY23 a core profit of RM50.2m made up 31% and 28% of FY23F forecasts of ours and the market’s respectively. We consider the results within expectations as we expect a soft 2QFY23 as its old stocks deplete while it takes time to ramp up the production of newer models amidst persistent supply-chain disruptions. We are unperturbed as the delivery of the order backlog of about 10k units (mostly newer models) is a matter of “when” and not “if”. It declared first interim NDPS of 3.0 sen (exdate: 13 Oct; payment date: 4 Nov) in 1QFY23 vs. 0.5 sen paid in 1QFY22.

1QFY23 turnover more than doubled YoY driven by robust demand for Mazda (+76% to 3,408 units), Peugeot (474 units) and Kia (448 units) vehicles.

In terms of geographical breakdown, higher sales of 3,908 units (+141%) and 422 units (+34%) were recorded in both Malaysia and the Philippines, respectively, as economies reopened.

Core PATAMI almost quadrupled YoY due to: (i) a higher blended margin with its product mix skewed towards the highmargin models, (ii) cheaper costs of imported inputs with the strengthening of the MYR against JPY, and (iii) a lower effective tax rate. Its associates represented largely by contract vehicle assembler Mazda Malaysia Sdn. Bhd turned profitable with a contribution of RM4m driven by higher vehicles production as the economy reopened.

Forecasts. We maintain our forecasts and TP of RM2.30 based on ascribed CY23F PER of 15x, which is at a premium to the auto sector’s average forward PER of 11x given its standing with one of the highest PAT margin among automakers (commanding an average of 8% compared to average PAT margin of local peers at 5%).

We like BAUTO for: (i) its premium mid-market Mazda brand that offers the best of both worlds, i.e. products appeal to the middle-income group and yet command more superior margins than its peers in the mid-market segment, and (ii) its attractive dividend yield of about 5%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

Risks to our call include: (i) consumers cutting back on discretionary spending (particularly big-ticket items like new cars) amidst high inflation, (ii) supply chain disruptions, (iii) escalating input costs, and (iv) weakening of MYR against JPY.

Source: Kenanga Research - 13 Sept 2022