The group “smashed estimates” with margins, sales volume and associate contribution surprising on the upside, said MIDF Research.
The latest quarter’s net profit brought 9M FY2023 core earnings to RM204 million, up 160% from the same period last year. This accounted for 99% of MIDF’s full year estimate, and 96% of the consensus.
The research house maintained their “buy” call on the stock, raising the target price (TP) to RM3.20 from RM2.67.
CGS-CIMB mirrored this move, maintaining an “add” on BAuto with a TP of RM3.30.
Similarly, Hong Leong Investment Bank (HLIB) maintained a ‘buy’ recommendation on BAuto with an unchanged TP of RM2.60.
PublicInvest Research was the most lukewarm of the lot, maintaining a ‘hold’ call with a target price of RM2.42, revised from RM2.20.
“We retain our ‘neutral’ call given limited upside to our revised target price,” said PublicInvest.
BAuto is involved in the distribution, assembling, retailing and provision of after sales service of Mazda vehicles in Malaysia. It is also involved in domestic distribution of locally assembled Mazda vehicles and export of locally assembled Mazda vehicles. It also distributes Kia and Puegeot models.
Strong financial performance
BAuto’s above-industry earnings and volume growth has made it one of the top sector picks for both MIDF and CGS-CIMB.
“Associate earnings more than doubled to RM15 million driven mainly by a 71% year-on-year volume increase at 30%-owned Mazda Malaysia Sdn Bhd (MMSB). The production growth is in-line with strong end-demand for Mazda CKD models,” said MIDF.
“Coupled with a reasonably undemanding valuation of 8.5 times FY24F price-earnings ratio (PER) against an expected earnings CAGR (compound annual growth rate) of +36% over our forecast horizon, as well as attractive dividend yield of 7.5%-8.2%, BAuto remains one of our top picks in the sector,” said MIDF.
CGS-CIMB said BAuto is its top sector pick due to its attractive FY2023-2025F yields of 6.6%-7.6% and growing market share, with the addition of Kia and Peugeot marques.
The rollout of new Kia and Mazda models, as well as the battery electric vehicle duty exemption in Budget 2023 will continue to be catalysts for its growth.
The duty exemption in particular may encourage take-up of new models such as EV6 from Kia, Peugeot e-2008 EV and the Mazda MX30 EV, says MIDF.
Slowing demand in 2023
According to the Malaysian Automotive Association, demand for cars is expected to slow this year.
The total industry volume (TIV) is expected to decline by 9.8% to 650,000 units from 720,658 in 2022 due to the expiry of the sales and service tax (SST) exemption for vehicle orders made prior to June 30, 2022 to be registered by March 31, 2023.
Nevertheless, MIDF said the outstanding Mazda bookings make up almost half of their revised FY2024 forecasted TIV of 15,700 units.
PublicInvest cautions that TIV will taper off once SST-exempted bookings are exhausted by March 2023.
The expiry of the SST holiday, sticky inflation and a rising interest rate environment contribute to a mixed long-term outlook for the automotive sector.
“With the newly launched CX-30 CKD and also higher mix of sales from 50% SST absorption campaign, margins may be affected in the near-term,” said HLIB.
However, HLIB said this would be compensated by the expected higher sales volume as well as the favourable position of the appreciated ringgit against the Japanese yen.
“(The) management is maintaining its commitment for dividend payout of 80% of net profit, indicating potential 5.6 sen/share in the coming Q4 FY2023,” it said.
Year-to-date, BAuto’s share price has risen 1.9% to RM2.15. However, the counter has seen more activity in the last six months, rising 10.82% or 21 sen to date.
At the close of trade today, BAuto’s share price rose 0.94% to RM2.15, giving it a market capitalisation of RM2.51 billion.