INVESTMENT THESIS

• 4Q19 beats street estimates

• Special dividends declared; generous 93% payout

• Looking to sustain FY19 volume performance

• Re-affirm BUY at unchanged TP of RM2.85

Beats street estimates. BAuto’s FY19F was within ours but broadly ahead of consensus estimates. BAuto reported net profit of RM60m for its 4Q19, which brought FY19F earnings to a record RM265m. This accounted for 103% of our estimate and 105% of consensus.

Special dividends. Underpinning our earlier view on dividends, BAuto declared an interim dividend of 4sen/share as well as a 7sen/share special dividend for its 4Q19. These brought total FY19 dividends to 21.25sen, representing a generous 93% payout and implying an attractive 8.9% yield.

Margin uplift. 4Q19 earnings were up 5%yoy despite a 6%yoy contraction in revenue. Operating margins of 12.5% (4Q18: 10.4%) were lifted by lower A&P spend and lower dealer incentives in the period. We think these are likely to normalise in the coming quarters ahead of the upcoming new launches. Additionally, net cost of the previous SST-rebate is estimated at RM1000-1500/unit, which is absent in 4Q19.

Production units to normalise. Associate earnings (which reflects both production units MMSB and Inokom) were also well in-line with our FY19 estimate of RM50m. MMSB earnings in 4Q19 were lower as production volumes normalised against an inflated 2Q19-3Q19, which was driven by inflated volumes. We expect associate earnings to normalise at an annual run-rate of circa RM30m which will be boosted in the coming quarters by commencement of CX8 exports in 2HFY20.

Outstanding bookings. Outstanding bookings stand at over 1500 units with the bulk (65%-70%) comprising the CX5. Most of the outstanding bookings came post SST-rebate promotions with SST-rebate bookings having been fully delivered last quarter.

New launches to sustain strong FY19 TIV. BAuto expects to at least maintain FY19 TIV of 15K-16K units in FY20F. Despite the inflated base driven by the tax-holiday in Jun18-Aug18, volumes will be driven by a pipeline of new launches namely the all new CX8 in Sep19/Oct19, the CX30 sometime in 2QFY20 and the Mazda 3 in Jun19. Volumes will mainly come from the CX8 (estimated monthly volume of 250-300) and the CX30 CBU (estimated 200/month volume). The CX8 is positioned in a less crowded segment of the SUV market competing against Toyota’s Fortuner mainly. Additionally, BAuto is looking to introduce a new 2.5litre turbo variant of the CX5 in 2HCY19 along with facelifts of the CX5 model.

Forecasts unchanged. We leave our FY20F earnings unchanged at this juncture. We expect Mazda TIV to sustain at around 15K-16K in FY20F while earnings is expected to reduce slightly by 2.4% off the record FY19F earnings given absence of the tax holiday period which allowed for much less dealer incentives and A&P expense to drive volumes. We introduce our FY21F earnings at RM267m (+3.1%yoy), which will reflect full year contribution of the CX8 (vs half year for FY20F) and the CBU CX30.

Source: MIDF Research - 13 Jun 2019