INVESTMENT THESIS

• New CX5 production roll out yesterday

• Strong bookings prior to actual launch, beating earlier estimates

• Underpins earnings gap-up from 2QFY18

• Re-affirm high conviction BUY at unchanged TP of RM2.55

New CX5 manufacturing launch. The production rollout (or the manufacturing launch) of the all new CX5 was held yesterday at the Inokom plant in Kulim, Kedah. Versus the old model, base pricing have been hiked by up to 2%. Five variants are available with prices ranging from RM134K – RM175K (the CRV starts at RM142K as a comparison). For metallic colors, an additional RM400 is required and for three “Premium “ metallic colours (Soul Red Crystal/Machine Grey/Snowflake White Pearl) produced at the group’s new paintshop, an additional RM2K is charged.

Strong bookings prior to actual launch. Management indicated that bookings for the new CX5 were opened last week. Within just this short one-week span, the new CX5 has already garnered some 700 firm bookings. This is already ahead of the 400-500 units/month implied sales target and capacity allocation (or a total of 5,000 units for FY18F). The official launch of the new CX5 in Kuala Lumpur is expected within the next 2 weeks. A few hundred units of the new CX5 have already been pre-produced, ready to be delivered to buyers. We expect numbers from the new CX5 to trickle in from October onwards.

Underpins earnings gap-up. As we had alluded to in previous reports; BAuto’s earnings recovery over the next few quarters will be 4- pronged: 1) Mazda TIV pick up from new CX5 in 2QFY18 2) Absence of old CX5 run-out discounts and price hike for new CX5 to boost margins mainly from 3QFY18 onwards 3) Export commencement of new CX5 to ASEAN ex-Vietnam from 2QFY18 4) Resumption in production given new CX5 launch in 2QFY18 to boost associate earnings from MMSB and Inokom 5) A stronger RM; YTD average JPY stands at RM3.87:JPYx100, already exceeding our FY18F assumption of RM3.90.

Exports also kicking in 2HFY18. Export volume target is 11K-12K for FY18F, reflecting 7 months contribution from Oct17 till Apr18; this is slightly higher than our assumption of 10,840 units (FY18F). In the past year, including 1QFY18, there were negligible exports in anticipation of new CX5; we assumed zero exports for the first 5 months of FY18F and the ~11K export volume to kick in only from Oct17.

Source: MIDF Research - 29 Sept 2017