• Weaker-than-expected vehicle sales and associate’s contribution to cause a temporary blip in earnings.
• Cut FY15 earnings by 6% from lower vehicle sales, fine-tune FY16/17 earnings by -3% each on stronger MYR:JPY forex.
• Reiterate BUY with lower TP of MYR4.90 (-10sen, ex-bonus TP: MYR3.50), pegged to unchanged 12.5x CY16.

What’s New

4QFY4/15 results, due out on 11th June, are likely to be below expectations. Mazda’s domestic/the Philippines vehicle sales closed FY15 at 12.2k/3.6k units, 10% short of our expectation of 13.5k/4k units respectively. Also, we gather that 30%-owned MMSB had to incur some start-up cost for the launch of the Mazda3 CKD while 25%-owned Inokom incurs higher depreciation of its newly upgraded paint shop.

While group vehicle sales improved QoQ (Malaysia: +28% QoQ, the Philippines:-11% QoQ due to seasonality), we note that growth was anchored by lower value/margin models (i.e. Mazda2, Mazda3 CKD). Against this backdrop, we cut our FY15 net profit forecast by 6% and now expect 4QFY4/15 core earnings to hit MYR40m-45m (9- 19% QoQ) to meet our revised estimate of MYR214m.

What’s Our View

We also fine-tune our FY16/17 earnings forecast by -3% each having adjusted for higher imported component costs as we hike our average MYR:JPY forex assumption to MYR3.03:JPY100 from MYR3.00:JPY100 previously.

BAuto’s mid-term earnings prospects remain promising with (i) strengthening market share aided by attractive Mazda new product offering, (ii) margin expansion from lower import duties and (iii) presence in a high TIV growth market, the Philippines (1M15 TIV: +22% YoY vs 2014 TIV: +29% YoY). Also, given BAuto’s debt-free position (9MFY4/15 net cash: MYR319m) and lean business model with little capex requirement, we see upside potential to our dividend forecasts which assume a 40% DPR. Maintain BUY.

Source: Maybank Research - 5 Jun 2015