We remain positive on its 2HFY20 prospect which could be better than 1HFY20, riding on the recently launched facelifted/turbo CX-5, the all-new CX-8, and all-new CX-30. BUY with a TP of RM2.75 based on 13x CY20E EPS. We like BAUTO for its: (i) expected earnings recovery from the stream of all-new models, (ii) superior margins, above industry peers (average profit margin of c.9% vs. peers of c.2%), and (iii) steady dividend yield of c.8%.

Last year was seen as a strong base benefitting from backlogged order delivery for zero-rated tax holiday sales. The group’s 1HFY20 local Mazda sales is 5,714 units (-24% YoY), based on MAA data. We feel positive on its 2HFY20 prospect which could be better than the first half, riding on the recently launched face-lifted/turbo CX-5 (22nd October) and the allnew CX-8 (13th November) as well as supported by the allnew CX-30 (CBU, 20th November).

BAUTO’s Philippines market will continue to be impacted by the Tax Reform for Acceleration and Inclusion (TRAIN) law, effective since January 2018. The TRAIN law has caused an increase in excise tax (up to 7%) and consequently, higher car prices, thus affecting the demand for motor vehicles in the Philippines. BAUTO plans to preserve its sales volume by increasing its dealerships there to 21 by the end of CY19 from 18 dealerships in CY18. Note that its 60.4%-owned BAUTO Philippines is still experiencing volatile sales volume in 1QCY20 at 527 units (-18% QoQ, -34% YoY).

BAUTO has launched the all new Mazda 3 Sedan and Hatchback (CBU, July), face-lifted and turbo variants of CX-5 (CKD, 22nd October), all-new CX-8 (CKD, 13th November), and all-new CX-30 (CBU, 20th November). BAUTO will introduce the face-lifted CX-3 (by Dec 2019/1QCY20) and all-new Mazda MX-30 (CKD based on demand) which was introduced at the Tokyo Motor Show (estimated launch in CY2020/CY2021), and tentatively in two formats; (i) full EV, and (ii) range extender powered by a small rotary engine (necessary for other markets where daily commutes are longer or Malaysia which lacks EV infrastructure).

Source: Rakuten Research - 3 Dec 2019