• Bonus issue will lift share base by up to 40%, to c.1.14b shares. Expect this corporate exercise to improve liquidity.
• Remains of our preferred picks on suppressed JPY/MYR forex and exposure to high growth Philippines car market.
• Reiterate BUY with a higher TP of MYR5.00 (+19%) having rolled forward valuation to 12.5x CY16 (from 13x CY15).

What’s New

BAuto has proposed a 2-for-5 bonus shares issue of up to 326m new BAuto shares of MYR0.50 par. The bonus issue, worth MYR163m in share capital value, will be distributed from its share premium account. The entitlement date has yet to be determined as the proposal is pending approvals from the relevant authorities and shareholders. This exercise is expected to complete mid-2015.

What’s Our View

The 2-for-5 bonus issue has no impact on our earnings forecasts. Our EPS forecasts and target price are unchanged for now pending completion of the corporate exercise. However, the bonus issue would enhance BAuto’s shares trading liquidity and improve its perceived affordability. Its total number of shares will be lifted by up to 40%, from 813.5m to an enlarged share base of between 1,139k and 1,141k (depending on the exercise of ESOS options amounting to 1.3k shares).

This is BAuto’s first bonus issue since its IPO in Nov 2013. We continue to like BAuto’s earnings growth prospects from: (i) attractive new launches (i.e. Mazda3 CKD, Mazda6 FL, CX-5 2.5L FL CKD, CX-3), (ii) cost exposure to the suppressed JPY/MYR forex and (iii) presence in high TIV growth market, the Philippines (2M15 TIV: +21% YoY). Also, with its strong net cash position (MYR319m as at end-Jan 2015), we do not rule out the possibility of a special dividend or acquisitions (i.e. raising stakes in Inokom/MMSB/BAP).

Source: Maybank Research - 30 Apr 2015