BAUTO’s FY23 results beat expectations. Its core net profit almost doubled YoY driven by robust demand for Mazda, Peugeot and Kia vehicles, and higher margins. BAUTO achieved record sales of 21.4k units in FY23 and guided for a higher number of at least 23k units in FY24. We raise our FY24F net profit by 3%, lift our TP by 7% to RM3.10 (from RM2.90) and reiterate our OUTPERFORM call.

Its FY23 results beat expectations, with earnings exceeding our forecast and the consensus estimate by 21% and 14%, respecitvely. The key variance against our forecast came from a higher-than-expected sales volume.

It declared fourth interim NDPS of 3.5 sen and special NDPS of 7.5 sen (ex-date: 20 Jul; payment date: 04 Aug 2023) in 4QFY23 vs. 4.5 sen paid in 4QFY22 bringing FY23 NDPS to 22.0 sen (FY22: 8.75 sen), above expectations.

YoY, FY23 revenue rose 53% driven by robust demand for Mazda (+30% to 17,280 units), Peugeot (doubled to 1,896 units) and Kia (2,194 units) vehicles.

In terms of geographical breakdown, higher sales of 19,688 units (+47%) and 1,682 units (+29%) were recorded in both Malaysia and the Philippines, respectively, as both countries reopened their economies.

FY23 core net profit doubled due to: (i) a higher blended margin with product mix skewed towards high-margin models, (ii) cheaper costs of imported units 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 recorded profit contribution that more than doubled, driven by higher vehicles production as the economy reopened.

QoQ, 4QFY23 revenue rose 10% driven by Mazda (+11% to 5,350 units), Peugeot (+14% to 422 units) and Kia (+19% to 743 units) vehicles. 4QFY23 core net profit rose by a larger 15% with higher blended margin thanks to a product mix that was skewed towards highmargin models.

Outlook. BAUTO achieved record sales of 21.4k units in FY23 (+46%) and guided for a higher number of at least 23k units in FY24 driven by all-new models launching (see page 2). Backlog orders at 6k units for Mazda, while few hundred units for both Kia and Peugeot.

Forecasts. We increase our FY24F net profit by 3%, as we raise our sales volume assumption by 15% to 23k units from 20k units, partially offset by higher cost of sales (assuming weakening of MYR against JPY from a higher base). Additionally, we introduce FY25F net profit at RM282.6m (+3%) with a sales volume assumption of 23.4k units (+2%).

Consequently, we lift our TP by 7% to RM3.10 (from RM2.90) based on unchanged PER of 13x on rolled-over valuation base year of CY24F (from CY23F), 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 that appeal to the middle-income group and yet command superior margins than its peers in the mid-market segment, and (ii) its attractive dividend yield of about 9%. 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) MYR weakens against JPY.

Source: Kenanga Research - 13 Jun 2023