BAUTO’s 1HFY23 results met expectations. Its core net profit more than tripled YoY driven by robust demand for Mazda, Peugeot and Kia vehicles, and a higher blended margin with a product mix that was skewed towards the high-margin 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 RM2.65 and OUTPERFORM call.

Within expectations. 1HFY23 a core profit of RM115.8m made up 60% and 62% of our FY23 forecast and the market’s, respectively. However, we consider the results within expectation as we expect a soft 3QFY23 due to lower deliveries due to the transition of the popular Mazda CX-30 (backlog orders up to 800 units) from CBU to CKD. We understand that the approval on pricing from the authorities will only come about in Jan 2023.

It declared first interim NDPS of 3.5 sen (ex-date: 22 Dec; payment date: 6 Jan 2023) in 2QFY23 vs. 1.5 sen paid in 2QFY22 bringing 1HFY23 NDPS to 6.5sen (1HFY22: 2.0 sen).

YoY, 1HFY23 revenue rose 86% driven by robust demand for Mazda (+47% to 7,127 units), Peugeot (1,103 units) and Kia (829 units) vehicles.

In terms of geographical breakdown, higher sales of 5,297 units (+19%) and 533 units (+1%) were recorded in both Malaysia and the Philippines, respectively, as economies reopened.

1HFY23 core net profit more than tripled due to: (i) a higher blended margin with product mix skewed towards the high-margin 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 RM11m driven by higher vehicles production as the economy reopened.

QoQ, 2QFY23 revenue rose 9% driven by Mazda (+9% to 3,719 units), Peugeot (+33% to 629 units) and Kia (-15% to 381 units) vehicles. 2QFY23 core net profit rose by a larger 31% with a higher blended margin thanks to a product mix that was skewed towards the highmargin models and as it front-loaded the delivery of Mazda CX-30 CBU models (which benefited from strengthening of the MYR against JPY) ahead of the transition period as mentioned above which started from Dec 2022.

Forecasts. We maintain our forecasts and TP of RM2.65 based on ascribed CY23F PER of 15x, which is at a premium to the auto sector’s average forward PER of 11x given its niche in the premium mid-market segment and ability to consistently pay out good dividends.

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 superior margins than its peers in the midmarket segment, and (ii) its attractive dividend yield of about 6%. 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 - 9 Dec 2022