Berjaya  Auto’s  2014  earnings  were  in  line  with  our  estimate,  but comfortably  exceeded  consensus  expectations.  4QFY14  was  a  record quarter  with  earnings  of  MYR48.1m  along  with  record-high  margins, helped by a favourable sales mix, weaker  JPY  as well as a reduction in duties.  We like Berjaya Auto,  given its undemanding FY15F P/E of  only 9.9x and robust 3-year earnings CAGR of 60.5%. Maintain BUY.

• In  line.  Berjaya  Auto’s  2014  earnings  were  in  line  with  our  but comfortably  exceeded  consensus  expectations,  representing  100.6% and 94.2% of full-year forecasts respectively. Group revenue rose 36.1% y-o-y  on  the  back  of  a  sales  volume  that  was  16.6%  higher  than  the preceding  year,  as  well  as  a  full  year’s  sales  contribution  from  its operation  in  the  Philippines,  which  commenced  Jan  2013.  Its  4QFY14 earnings rose 57.4% q-o-q and 106.1%  y-o-y to MYR48.1m, driven by  a record-high EBIT margin of 15.4% (3QFY14: 11.9%).  A  3.5-sen  second interim  dividend was declared, bringing the total 2014 GDPS to 5.25 sen (32%  payout  ratio).  Associate  earnings  rose  27%  q-o-q  and  908.1%, driven by its expanding completely knocked down (CKD) operations.
• Earnings  fuelled  by  margin  expansion.  Its  net  margin  rose  to  8.9% from 4.7% in 2013,  due to:  i)  a  better sales mix, ii)  a  reduction in import duties, iii)  the  favourable MYR/JPY rate,  and iv) increased localisation.We also note that overhead costs were well-contained.
• All set for the next earning wave.  Berjaya Auto has a solid new model pipeline over the next two years that includes the  Mazda 2  (B-segment offering),  CX-3  sport  utility  vehicle  and  MX-5  sports  convertible.  The timely commissioning of the new Inokom production  facility  will see the CKD  Mazda  3  and  Mazda  6  models  hitting  the  market  by  4Q14  and 1Q15 respectively.  Its management also guided that the ramping-up of the  new  plant  is  well  on  track  and  monthly  production  should  exceed 1,000 units from June.
• Maintain  BUY.  We  reiterate  our  BUY  call  with  an  unchanged  TP  of MYR3.20. Our TP is based on  a  CY15 earnings P/E of 12.5x,  which is broadly in line with peer target valuations. Berjaya Auto remains our Top Pick for the automotive sector, given its undemanding FY15F P/E of only 9.9x and robust 3-year earnings CAGR of 60.5%.

Source: RHB