• Keep BUY, new MYR3.25 TP from MYR3.35, 28% upside and c.9% yield. FY24 (Apr) earnings met our and Street’s expectations. Looking ahead, its volume-heavy CX-30 CKD should continue to provide support to Mazda sales on top of the newly launched CX-3 and CX-5 models, together with anticipated launch of all-new Kia Sportage and Xpeng G6. We favour Bermaz Auto for its resilient car sales and attractive c.9% FY24F yield.

• In-line results. 4QFY24's core profit of MYR91m brought FY24 core earnings to MYR353m, making up 103% and 106% of our and Street’s full- year estimates – largely in line with expectations. Its 4QFY24 and special DPS of 4.75 sen and 7.0 sen brought FY24 DPS to 26 sen – slightly above our forecast of 25 sen.

• Results highlights. 4QFY24 revenue rose 5% QoQ, as sales volumes in both Malaysia and the Philippines rose 5% and 6% QoQ. Operating profit grew by a larger 27% QoQ, thanks to favourable product mix during the period, bringing its margin to 11.8% (3QFY24: 9.7%). As a result, core net profit climbed 30% QoQ, bringing FY24 earnings to MYR353.2m (+16.3% YoY). The record-high earnings achievement was also supported by higher associates’ contributions in FY24 (+28% YoY).

• Outlook. While we believe BAUTO’s sales volumes will soften in FY25, in line with expected TIV cyclical downturn, we think its car sales will remain relatively resilient. This is mainly supported by Mazda’s newly launched CX- 3 and CX-5 models earlier this year on top of robust CX-30 CKD sales, which on its own makes up more than 30% of total Mazda volume sold in Malaysia. Management is also hopeful on the anticipated launch of the all-new Kia Sportage this year-end, which will contribute to Kia’s volume growth in FY25. Not only that, BAUTO’s new marque under its umbrella (Xpeng) should help the group set its foothold in the local EV market. The impact of diesel subsidy rationalisation should not materially impact BAUTO’s earnings as its exposure to diesel-powered vehicles is less than 5%.

• Forecast. We lift our FY24-25F earnings by 1-5% as we lift our sales volume assumptions to take into account the debut of Xpeng as well as the comeback of Kia Sportage to the local market. We also lift our FY25F DPS assumption to 23 sen from 22 sen, assuming a payout ratio of 84%, ie conservative relative to FY24's 86%.

• Our new MYR3.25 TP is based on a rolled forward 11.5x FY25F P/E and 4% ESG premium. Though the stock is currently trading at its historical mean of 9x FY25F EPS, we believe BAUTO deserves a higher PE considering its robust car sales due to consistent new model launches as well as attractive c.9% dividend yield.

• Key downside risks include softer-than-expected orders and deliveries, and resurgent supply chain constraints.

Source: RHB Research - 12 Jun 2024