INVESTMENT THESIS

• 4Q18 beats estimates

• Achieves record quarterly earnings, on track to hit our 61% FY19F growth

• Special dividends declared

• Re-affirm BUY at unchanged TP of RM2.70, 7% yields attractive

4Q18 beats estimates. BAuto reported net profit of RM57m for its 4Q18 which brought 9M18 earnings to RM140m. This is ahead of both our estimates and consensus accounting for 108% and 107% of forecasts respectively.

Special dividends declared. In line with the solid results, BAuto announced a special dividend of 2.7sen/share on top of a final dividend of 2.3sen/share, bringing FY18 dividends to 10.5sen/share giving a solid 4.5% yield. FY18 payout at 86% was at the mid-end of guidance of 80%-90% payout.

Quarterly earnings tests record high. 4Q18 earnings grew by a whopping 157%yoy and a further 41%qoq (this is after having seen 3Q18 earnings grow 82%qoq back in March18). Revenues grew 65%yoy driven by strong demand for the new CX5 coupled with significant margin expansion.

Associate earnings doubled and hits new high. Associate earnings hit a new record in 4Q18 on the back of record MMSB (Mazda Malaysia SB - 30% owned) assembly volumes (See Exhibit 4), underpinning our view of an export driven earnings growth. Production expanded from launch of the new CX5 and commencement of exports of the new CX5 to key ASEAN markets.

Margins improved further. BAuto registered 12% operating margins for the domestic operations (which accounts for xx% of earnings) and this should be sustainable given: (1) Higher mix of new CX5 which is a higher margin model - CKD models accounted for 77% of 4Q18 Mazda TIV (2) Premium pricing for the new CX5 which was hiked further by 2%-3% form Jan18 (3) A stronger RM - JPY:RM booked in was RM3.65/3.66 in 4Q18 (4) Absence of old CX5 sales in 4Q18, which dragged margins in prior quarters. The Philippines unit saw some weakness given the weaker Peso against the JPY while the hike in excise duties since early CY18 impacted Philippines TIV.

No changes to forecasts. While the 4Q18 outperformed our forecast, this is given that the stronger RM3.65:JPY levels were registered earlier than expected (vs. management's earlier guidance of RM3.85:JPY hedges up till Apr18). Our FY19F/20F already factors in ~RM3.70:JPY levels and we conservatively leave that unchanged for now. However, our FY19F earnings are already 10% higher than consensus currently. BAuto looks on track to hit our forecast 61% earnings growth in FY19F.

Source: MIDF Research - 13 Jun 2018