14 June 2017 4QFY17 Results Review Bermaz Auto Darkest before dawn Maintain BUY Unchanged Target Price (TP):RM2.50 INVESTMENT THESIS 4QFY17 within our expectation, below consensus Impacted by weak RM but worst is over Volumes rebounded and dividends outperformed Re-affirm BUY at unchanged TP of RM2.50 RETURN STATS Price (13 June 2017) RM2.02 In-line with ours, below consensus BAuto reported 4QFY17 net profit of RM22m, which brought FY17 earnings to RM119m. This accounted for 100% of our forecast but slightly below consensus at 93%. Weak Ringgit but worst is over. Earnings were weaker both qoq and yoy given a weak Ringgit which impacted margins. The Ringgit averaged at 3.95 in 4QFY17 (3QFY17: RM3.90) but the worst should be over. The Ringgit had since strengthened to the current JPY:RM3.87 levels which will work positively for margins going forward. Every 1% change in the JPY impacts our FY18F by 2.5%. The 4QFY17 also entailed lower CKD proportion (i.e. 56% vs. 65% in 3QFY17) due to lower sales of the CX5 ahead of the new model launch in FY18F. BAuto is exposed to the JPY only via CBU purchases, which accounted for 59% of FY17F Mazda TIV. Earnings gap-up ahead. Positively, the 4QFY17 saw improved volumes for Malaysian Mazda sales (+14%qoq), 30%-owned MMSB (Mazda assembly) and 29%-owned Inokom (contract assembly of various marques including Mazda). This came ahead of the Mazda 3 facelift in late April which also came with launch of G-Vectoring Control (GVC) variants for the Mazda 3 and CX3. The big volume and margin kicker will come after launch of the new CX5 (in Sep17) and CX9 (in Jul17). The stronger underlying margins coupled with a stronger Ringgit and improved volumes should drive a gap-up in earnings in FY18F. Dividends outperformed. For FY17F, dividends stood at 11.6sen, 16% higher than our earlier forecast of 10sen/share. Absolute dividends were lower year-on-year due to lower profit but this was expected. More importantly, the dividends entailed higher 113% payout (vs. 97% payout last year) and an attractive yield of 5.8%. Recommendation. From a valuation standpoint, BAuto is cheap at just 10x CY18F earnings, relative to historical sector PE of ~12x. Given a strong 41% earnings CAGR over the next 2 years, solid dividend yields and value unlocking from the listing of BAP, BAuto should in fact trade at a premium to the sector. Re-affirm BUY at a unchanged SOP-derived TP of RM2.50/share. Target Price Expected Share Price Return RM2.50 +23.8% Expected Dividend Yield +8.6% Expected Total Return +32.3 % STOCK INFO KLCI 1784.44 Bursa / Bloomberg Board / Sector Syariah Compliant 5248 / BAUTO MK Main/Automotive Yes Issued shares (mil) 1,152.25 Market cap. (RM m) 2,327.54 Price over NA 5.21 52-wk price Range RM1.95 - RM2.44 Beta (against KLCI) 0.98 3-mth Avg Daily Vol 1.66m 3-mth Avg Daily Value Major Shareholders (%) RM3.42m EPF 12.5% Podium Success 6.3% KWAP 6.0% MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures
INVESTMENT STATISTICS FYE Apr FY15 FY16 FY17 FY18F FY19F Revenue (RM m) 1,830 2,112 1,660 2,378 2,496 EBIT (RM'm) 286 262 162 255 288 Pre-tax Profit (RM m) 301 279 177 278 326 Core net profit (RM'm) 215 202 119 198 237 FD EPS (sen) 18.6 17.5 10.3 17.1 20.5 EPS growth (%) 64.9 (7.8) (41.1) 66.5 19.5 PER (x) 10.8 11.6 19.6 11.8 9.9 Net Dividend (sen) 14.6 16.9 11.7 17.1 20.5 Net Dividend Yield (%) 7.2 8.4 5.8 8.5 10.1 Key share price catalysts in the next 12 months: (1) Attractive dividend yield of 8.6% underpinned by net cash which accounts for 12% of market cap and solid 7% FCFE yield (FY17F). Listing of Philippines unit will bump yields up further given potential one-off special dividends. (2) Value unlocking from the listing of BAuto Philippines (BAP). Current market cap attributes practically no value to BAuto s stake in BAP relative to the 16x indicative IPO valuation and historical sector valuation of 12x (for Malaysian autos). Ex-cash, BAuto trades at just 9x CY18F earnings. (3) A more than doubling in associate earnings contribution to group (via 30%-owned Mazda Malaysia SB and 29%-owned Inokom) given a massive export market expansion which will triple MMSB s prospective market. (4) Launch of the new CX5 and new CX9 which will drive a recovery in volumes and margins. BAuto is targeting FY18F Mazda TIV at around 15K (+42%yoy) (versus our conservative FY18F of 14K) while BAP targets sales of 5,500 units (+33%yoy) versus FY17F estimate of 4,150 units. We stick to our conviction that the worst is over for BAuto. Key earnings catalysts to look out for in the next 12 months: (1) A pick up in sales of the Mazda 2 CBU given renegotiated, lower pricing of this unit from Mazda Corporation for a limited batch of 1,000 units BAuto will enjoy additional margins of RM1,600/car for this batch of Mazda 2 (2) Introduction of the facelift Mazda 2 (3) An easing in the JPY to <RM4.00:JPY (4) Delivery of the initial 60 units of CX9 CBU in Jun-Jul 2017 (5) Commencement of new CX5 exports from Aug17 (6) Introduction of the new CX5 from Sep17 (7) Introduction of the CKD CX9 in 3QFY18. EXHIBIT 1: MARKET ATTRIBUTING NO VALUE TO BAUTO S STAKE IN BAP BAuto current market cap (RMm) 2,314 Value of domestic operations @ 12x CY18F PE (RMm) 2,390 Implied value of Bauto's 60% stake in BAP (RMm) (75.7) BAP contribution to BAuto net profit (CY18F) (RMm) 24.9 Implied PE valuation of BAP at current market cap (x) (3.0) BAP IPO PER valuation (x) 15 EXHIBIT 2: BAUTO SUM-OF-PARTS VALUATION CY18F net profit (RMm) PE (x) Value (RMm) Malaysia 199.1 12 2,409 Philippines 24.9 18 449 Total value 2,858 Shares out (m) (fully diluted) 1,157 Value/share (RM) 2.50 2
EXHIBIT 3: BAUTO 4QFY17 RESULT REVIEW FYE Apr (RMm) 4Q16 3Q17 4Q17 QoQ YoY FY16 FY17 YTD Revenue 534.7 338.7 354.0 5% -34% 2,112.2 1,659.5-21% Operating profit 70.0 39.5 27.5-30% -61% 262.1 161.8-38% Interest income 1.6 0.6 0.7 19% -57% 5.4 3.7-30% Finance cost (0.0) (1.2) (1.1) -9% 4276% (0.1) (3.0) 2434% Associates 1.8 0.1 5.6 6377% 217% 11.4 14.0 23% Pretax profit 73.3 39.0 32.6-16% -55% 278.7 176.6-37% Tax (17.5) (10.5) (7.0) -34% -60% (68.0) (43.1) -37% PAT 55.78 28.43 25.65-10% -54% 210.7 133.5-37% MI 4.2 3.3 3.4 4% -17% 12.7 14.4 14% Net profit 51.6 25.1 22.2-12% -57% 198.0 119.1-40% Core net profit 51.6 25.1 22.2-12% -57% 202.1 119.1-41% EPS (sen) 4.5 2.17 1.92-11.5% -57.0% 17.5 10.3-41% GDPS (sen) 10.00 2.75 3.15 14.5% -68.5% 16.90 11.65-31% EBIT margin 13.1% 11.7% 7.8% 12.4% 9.7% Pretax margin 13.7% 11.5% 9.2% 13.2% 10.6% Core net profit margin 9.7% 7.4% 6.3% 9.6% 7.2% Tax rate 23.9% 27.1% 21.4% 24.4% 24.4% Mazda TIV (Malaysia, units) 3,519 1,931 2,203 14.1% -37.4% 15,050 10,569-30% Avg revenue per car (RM) 122,636 128,842 114,837-10.9% -6.4% 112,263 119,835 7% Malaysia revenue (RMm) 431.6 248.8 253.0 1.7% -41.4% 1,689.6 1,266.5-25% Philippines revenue (RMm) 103.2 89.9 101.0 12.4% -2.0% 422.7 393.0-7% Malaysia EBIT (RMm) 55.2 27.8 15.8-43.2% -71.4% 218.2 112.3-49% Philippines EBIT (RMm) 15.1 11.9 12.3 3.4% -18.4% 45.0 50.9 13% Malaysia EBIT margin 12.8% 11.2% 6.2% 12.9% 8.9% Philippines EBIT margin 14.6% 13.3% 12.2% 10.7% 13.0% BAP (P'pines) volume (units) 1,108 1,001 1,009 0.8% -8.9% 4,684 4,167-11% MMSB volumes (units) 2,127 2,380 2,735 14.9% 28.6% 10,619 9,519-10% Dividend Payout ratio 224% 127% 164% 97% 113% Spot JPY:MYR (x1000) 3.60 3.90 3.95 1.3% 9.7% 3.42 3.92 15% Spot PESO:MYR (x100) P'pines EBIT contribution 22% 30% 45% 17% 31% CKD ratio 55% 65% 56% 52% 59% 3
DAILY PRICE CHART Hafriz Hezry hafriz.hezry@midf.com.my 03-2173 8392 Source: Bloomberg, MIDFR 4
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected to be <-15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 5