Berjaya Auto - The best ride you can have

Author: kltrader   |   Publish date: Tue, 14 Jun 2016, 02:04 PM 

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FY16 earnings, dividend positively surprise

BAuto’s 4QFY4/16 core earnings beat expectations on better sales mix. Nonetheless, we trim FY17-18 earnings forecasts by 3%-6% on lower volume sales and unfavourable JPY/MYR forex. Our new TP is MYR2.50 (- 4%), on unchanged 13x CY17 EPS (+0.5SD). With the current management taking over as the single largest shareholder under a SPV, we see upside in dividends; thus raise our DPR assumption to 70% from 50% resulting in ~5% yield for FY17. There could be further value to be unlocked via the listing of its 60%-owned Philippines entity. Maintain BUY.

A much better set of results compared to peers

4QFY16 core net profit of MYR50m (+17% QoQ, -13% YoY) took FY16 core earnings to MYR202m (-10% YoY), 108%/104% of our/consensus forecasts. FY16 headline net profit included one-off negative MYR4m, mainly ESOS charge (-MYR5m), partially offset by gains on derivatives (+MYR1m). Despite weaker vehicle sales QoQ, profits were higher QoQ underpinned by better sales mix (i.e. contribution from the CX-5 facelift model) which has improved sales and margins. An interim/special DPS of 2.5/7.5 sen (ex: 5 Jul) lifts FY16 DPS to 16.9sen (DPR: 98%) – a positive surprise.

Dynamic Milestone SPV firmed details

Upon completion, the 33:67 Dynamic Milestone SPV (owned by BCorp and BAuto’s current management respectively) will hold a 17.11% stake in BAuto, making it the single largest shareholder. With BAuto’s shares pledged to the bank for borrowings to fund the purchase of BAuto shares from BCorp, there should no longer be worries on share overhang issues.

But, broad outlook remains weak

Despite the positives (i.e. higher dividend and listing of the Philippines operation), we trim our FY17/18 earnings forecasts by 6%/3% mainly to factor in (i) slower car sales amid suppressed consumer sentiment (esp. Malaysia) and (ii) higher cost from weaker MYR (JPY100/MYR3.70 from JPY100/MYR3.60 previously). Further weakness in consumer sentiment and MYR against JPY are key threats to BAuto’s earnings
Source: Maybank Research - 14 Jun 2016