HLIB said it based its more positive view of the company on a recent drop in its its share price, coupled with a strong order book and balance sheet.
According to the research house, the group envisioned a surge in production volume for the financial years 2024 and 2025.
It also expressed confidence that the localisation of new models for the domestic and export markets as well as efforts to increase volume by driving sales would benefit its associates Mazda Malaysia Sdn Bhd, Kia Malaysia Sdn Bhd and Inokom Corp Sdn Bhd.
BAuto has a 33.3% stake in Kia Malaysia, a 30% stake in Mazda Malaysia and a 29% stake in Inokom.
The research house also retained its target price of RM2.30 for BAuto, gleaned from an unchanged 12 times price to earnings (PE) ratio for the year 2024.
HLIB analyst Daniel Wong said the group was now drawing attention following the recent drop in its share price.
“We believe the current share price has become an attractive entry point,” he said.
“BAuto still has a relatively strong group order book of 5,500 units, mainly for Mazda,” he said.
“The group also has a healthy balance sheet position with net cash of RM437.7 million or 37.5 sen per share as of end-FY2023,” Wong added.
Mazda Malaysia reported RM32.3 million in profit for FY2023, up from RM11.1 million in FY2022 as a result of a 38.7% year-on-year (y-o-y) surge in production.
However, Wong said, Inokom’s contribution slipped by 10.3% y-o-y to RM7.2 million in FY2023, due to higher operational costs, despite an increase in the number of cars sold.
Although Kia Malaysia’s contribution was also lower due to initial start-up operation costs in FY2023, it has already made a turnaround in the fourth quarter (Q4 FY2023), said the analyst.
In the interim, the analyst said, Inokom’s RM237 million investment in a new paint shop would be a boost for revenue.
“Inokom has also recently secured new contract assembly services from Chery Malaysia, which has reported a strong order book for the newly launched Omada 5 model,” Wong said.
“Both Mazda and Kia are expecting to further increase their assembling volume on higher demand and new model introductions,” he added.
Besides, Inokom has projected total production volume to increase to 40,000 units in FY2024 and 62,000 units in FY2025, from 30,000 units in FY2023.
Just before market closed for the lunch break, BAuto’s share price was down 1.46% or 3 sen to RM2.02, valuing the group at RM2.37 billion.