• 4QFY17 within our expectation, below consensus

• Impacted by weak RM but worst is over

• Volumes rebounded and dividends outperformed

• Re-affirm BUY at unchanged TP of RM2.50

In-line with ours, below consensus BAuto reported 4QFY17 net profit of RM22m, which brought FY17 earnings to RM119m. This accounted for 100% of our forecast but slightly below consensus at 93%.

Weak Ringgit but worst is over. Earnings were weaker both qoq and yoy given a weak Ringgit which impacted margins. The Ringgit averaged at 3.95 in 4QFY17 (3QFY17: RM3.90) but the worst should be over. The Ringgit had since strengthened to the current JPY:RM3.87 levels which will work positively for margins going forward. Every 1% change in the JPY impacts our FY18F by 2.5%. The 4QFY17 also entailed lower CKD proportion (i.e. 56% vs. 65% in 3QFY17) due to lower sales of the CX5 ahead of the new model launch in FY18F. BAuto is exposed to the JPY only via CBU purchases, which accounted for 59% of FY17F Mazda TIV.

Earnings gap-up ahead. Positively, the 4QFY17 saw improved volumes for Malaysian Mazda sales (+14%qoq), 30%-owned MMSB (Mazda assembly) and 29%-owned Inokom (contract assembly of various marques including Mazda). This came ahead of the Mazda 3 facelift in late April which also came with launch of G-Vectoring Control (GVC) variants for the Mazda 3 and CX3. The big volume and margin kicker will come after launch of the new CX5 (in Sep17) and CX9 (in Jul17). The stronger underlying margins coupled with a stronger Ringgit and improved volumes should drive a gap-up in earnings in FY18F.

Dividends outperformed. For FY17F, dividends stood at 11.6sen, 16% higher than our earlier forecast of 10sen/share. Absolute dividends were lower year-on-year due to lower profit but this was expected. More importantly, the dividends entailed higher 113% payout (vs. 97% payout last year) and an attractive yield of 5.8%.

Recommendation. From a valuation standpoint, BAuto is cheap at just 10x CY18F earnings, relative to historical sector PE of ~12x. Given a strong 41% earnings CAGR over the next 2 years, solid dividend yields and value unlocking from the listing of BAP, BAuto should in fact trade at a premium to the sector. Re-affirm BUY at a unchanged SOP-derived TP of RM2.50/share.

Source: MIDF Research - 14 Jun 2017