BAUTO’s 1QFY24 results beat expectations on strong demand for the refreshed CX-30 CKD model. Its 1QFY24 core net profit doubled YoY, driven by robust sales of Mazda, Peugeot and Kia vehicles, and higher margins. It raised its FY24F sales guidance by 1k units to 24k units from 23k units three months ago. We increase our FY24-25F net profit by 4% each, lift our TP by 4% to RM3.22 (from RM3.10) and reiterate our OUTPERFORM call.

Its 1QFY24 results beat expectations, coming in at 37% of our full-year forecast and 38% of the full-year consensus estimate. The key variance against our forecast came from a higher-than-expected sales volume especially for the refreshed CX-30 CKD model and backlog orders delivery of Mazda 3 CBU.

It declared a first interim NDPS of 5.0 sen (ex-date: 19 Oct; payment date: 03 Nov 2023) in 1QFY24 vs. 3.0 sen paid in 1QFY23, on track to beat our full-year forecast of 18.9 sen. We therefore raise our FY24-25 dividend forecasts by 11% and 10% to 20.9 sen and 21.5 sen, respectively.

YoY, BAUTO’s 1QFY24 revenue rose 52% driven by robust demand for Mazda (+15% to 5,729 units), and Kia (55% to 315 units) vehicles, while Peugeot focused on high-margin models (-43% to 313 units)

In terms of geographical breakdown, higher sales of 5,918 units (+51%) and 730 units (+73%) were recorded in both Malaysia and the Philippines, respectively, on economy reopening.

Its 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 production as the economy reopened.

QoQ, BAUTO’s 1QFY24 revenue rose 2% driven by mostly by Mazda (+7%) vehicles, which more than cushioned the weaker sales volumes of Peugeot (-26%) and Kia (-58%) vehicles (as it focused on selling higher-end Peugeot and Kia to sustain margins). However, its core net profit was flat due to a higher effective tax rate.

Outlook. BAUTO guided for a higher number of at least 24k units in FY24 driven by all-new models launching (see page 2) especially boosted by the refreshed CKD model of CX-30. At present, its order backlogs stand at 5k units for Mazda and a few hundred units each for Kia and Peugeot.

Forecasts. We increase our FY24-25F net profit by 4% each as we raise our sales volume assumptions by 4% each to 24k units in FY24 and to 24.4k in FY25, partially offset by higher cost of sales (assuming MYR is to weaken against JPY).

Consequently, we lift our TP by 4% to RM3.22 (from RM3.10) based on an unchanged CY24F PER of 13x, 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 strong earnings visibility backed by an order backlog of 5.5k units for Mazda, Kia and Peugeot vehicles, (ii) 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 (iii) 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 Sept 2023