INVESTMENT THESIS

• New CX5 officially launched, 200 units delivered

• “Soft-booking” tests 1K mark at launch

• Underpins earnings inflection point from 2QFY18

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

New CX5 officially launched. The new 2nd generation CX5 was launched at One Utama, Kuala Lumpur yesterday. Five variants (all CKD) 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. Versus the old model, we estimate base pricing have been hiked by up to 2%.

Strong bookings to drive volume recovery. Our chat with management yesterday indicates that since opening up the model for “soft-bookings” in late September, BAuto has already garnered a total of around 950-1000 bookings. This is well ahead of the 400-500 units/month implied sales target and capacity allocation (or a total of 5,000 units for FY18F). A few hundred units have been pre-produced by Inokom prior to the launch and some 200 units (of the ~1000 bookings) have already been delivered to the early-bird buyers. The official bookings have only been opened at the launch yesterday and we expect the booking bank to grow meaningfully in the near-term. We expect volumes from the new CX5 to trickle in mainly from October onwards. The CX5 is BAuto’s largest volume driver accounting for 43% of Mazda TIV (FY17).

Underpins earnings inflection point. 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 the 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) Resumption in production and export commencement of the new CX5 to ASEAN exVietnam from 2QFY18 to boost associate earnings from MMSB (Mazda Malaysia Sdn Bhd) and Inokom 4) A stronger RM; YTD average JPY stands at RM3.87:JPYx100, already exceeding our FY18F assumption of RM3.90.

Exports kicking in at the same time. 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 the 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 - 12 Oct 2017