We initiate coverage on Berjaya Auto (BAUTO), the sole
importer and distributor of Mazda vehicles in Malaysia and the
Philippines, with a BUY. Mazda cars are set to sell well,
aided by their attractive KODO design language, highly-acclaimed
SkyActiv technology and strong localisation programme that will
help BAUTO yield a 3-year EPS CAGR of 37.4%. Our FV of RM1.95 is
based on 12x FY15F P/E.
- Catching up fast. Although Mazda has not been a mainstream brand in Malaysia and the Philippines in recent years, its market share in the former has grown to 3.3% YTD from a mere 0.4% in 2008. BAUTO became the marque’s sole importer and distributor in Malaysia that year(it became the Philippines’ importer/distributor in 2013). Mazda vehicles have been well received, particularly for their attractive and innovative “KODO-Soul of Motion” design language and highly acclaimed SkyActiv technology. We think that Mazda has a strong design edge over other Japanese marques and is a unique selling point that appeals to more discerning buyers.
- Robust performance. BAUTO recorded strong 1HFY14 earnings growth on a higher 9.4% EBIT margin (1HFY13: 7.3%). The margin expansion was due to: i) duties reduction on higher localisation content for the CX-5 sports utility vehicle (SUV), and ii) rebates for the 6 saloon on a change in docket price. Going forward, we see sustainable higher margins from completely knocked down (CKD) models, with CKD programmes slated for the 3 and 6 models in the pipeline.
- Higher sales and margins to drive 37.4% EPS CAGR FY13-16F. We expect BAUTO to achieve 104.9%/25%/13% earnings growth in FY14F/15F/16F, driven by: i) sales of the bestselling CX-5 and 3, ii) the launch of five new models in the next three years , and iii) its expanding CKD programme. Our FY14/15/16 PATAMI estimates are MYR104.2m/MYR130.3m/MYR147.2m.
- BUY, with a MYR1.95 FV. Our FV is based on 12x FY15F P/E, which is broadly in line with peer target valuations, with the stock offering robust earnings growth. BAUTO currently trades at an undemanding FY15F P/E of 10.4x. Our FV also implies a 16% upside. BUY.
Company Profile
Background
BAUTO was listed on the Main Board of Bursa Malaysia Securities on 18 Nov 2013. The IPO saw the group raising approximately MYR57.9m from the issuance of 82.76m new shares – at an offer price of MYR0.70/share – with 72% of the proceeds slated for working capital use. Mazda’s appearance in Malaysia began way back in Oct 1964 when Asia Motors, a local company set up by the Ph’ng family, first obtained the franchise. Asia Motors ceased operations in Malaysia in the late 1980s and Cycle & Carriage Bintang (CNCB MK, NR) then held the franchise for a good 20 years. In 2008, Prima Merdu SB was appointed by Mazda as the new importer. In the same year, it began collaborating with Bermaz Motor SB, BAUTO’s wholly owned subsidiary, to distribute Mazda vehicles in Malaysia.
Background
BAUTO was listed on the Main Board of Bursa Malaysia Securities on 18 Nov 2013. The IPO saw the group raising approximately MYR57.9m from the issuance of 82.76m new shares – at an offer price of MYR0.70/share – with 72% of the proceeds slated for working capital use. Mazda’s appearance in Malaysia began way back in Oct 1964 when Asia Motors, a local company set up by the Ph’ng family, first obtained the franchise. Asia Motors ceased operations in Malaysia in the late 1980s and Cycle & Carriage Bintang (CNCB MK, NR) then held the franchise for a good 20 years. In 2008, Prima Merdu SB was appointed by Mazda as the new importer. In the same year, it began collaborating with Bermaz Motor SB, BAUTO’s wholly owned subsidiary, to distribute Mazda vehicles in Malaysia.
Key Management
BAUTO’s board is made up five directors – three of them are independent directors, while Dato’ Yeoh Choon San and Dato’ Lee Kok Chuan as non-Independent directors. Besides Dato’ Lee, who acts as the representative for Berjaya Corp (BC MK, NR) on the board, none of the other directors represents a corporate shareholder.
BAUTO’s board is made up five directors – three of them are independent directors, while Dato’ Yeoh Choon San and Dato’ Lee Kok Chuan as non-Independent directors. Besides Dato’ Lee, who acts as the representative for Berjaya Corp (BC MK, NR) on the board, none of the other directors represents a corporate shareholder.
Dato’ Yeoh Choon San
Dato’ Yeoh has been BAUTO’s chief executive officer and executive director since 2011. He has over 40 years of experience in the automotive industry, holding various positions ranging from technical manager to executive director. He led the team that successfully turned around the sales performance of Hyundai (005380 KS, NR)’s range of passenger vehicles in Malaysia, and managed the South Korean marque’s distribution and retailing operations here between 1997 and 2007.
Dato’ Yeoh has been BAUTO’s chief executive officer and executive director since 2011. He has over 40 years of experience in the automotive industry, holding various positions ranging from technical manager to executive director. He led the team that successfully turned around the sales performance of Hyundai (005380 KS, NR)’s range of passenger vehicles in Malaysia, and managed the South Korean marque’s distribution and retailing operations here between 1997 and 2007.
Tan Say Chye
Mr Tan Say Chye has been BAUTO’s general manager of corporate planning/internal audit since 2008 and has over 20 years of experience within the Berjaya group. He started his career in 1982 with Chew & Associates before moving to KFC Food Processing SB (now known as Ayamas Food Corp SB), where he gained wide exposure to the poultry business by serving in roles like accounts executive, internal audit supervisor and management accountant. Tan has been a member of the Malaysian Institute of Accountants (MIA) since 1995 and has been a fellow of the Association of Chartered Certified Accountants (ACCA), UK since 1998.
Mr Tan Say Chye has been BAUTO’s general manager of corporate planning/internal audit since 2008 and has over 20 years of experience within the Berjaya group. He started his career in 1982 with Chew & Associates before moving to KFC Food Processing SB (now known as Ayamas Food Corp SB), where he gained wide exposure to the poultry business by serving in roles like accounts executive, internal audit supervisor and management accountant. Tan has been a member of the Malaysian Institute of Accountants (MIA) since 1995 and has been a fellow of the Association of Chartered Certified Accountants (ACCA), UK since 1998.
Tan Lay Hian
Mr Tan Lay Hian has been BAUTO’s general manager of finance since 2009 and has over 30 years of working experience in audit and finance. He began his career in 1983 as an audit trainee at Peat Marwick & Mitchell Kuala Lumpur (now known as KPMG Malaysia). He left KPMG Malaysia in 1989 and has, since then, held various positions in the audit and finance field in various industries. Tan is a qualified accountant and holds a professional degree from the Malaysian Institute of Certified Public Accountants.
Mr Tan Lay Hian has been BAUTO’s general manager of finance since 2009 and has over 30 years of working experience in audit and finance. He began his career in 1983 as an audit trainee at Peat Marwick & Mitchell Kuala Lumpur (now known as KPMG Malaysia). He left KPMG Malaysia in 1989 and has, since then, held various positions in the audit and finance field in various industries. Tan is a qualified accountant and holds a professional degree from the Malaysian Institute of Certified Public Accountants.
Business Model
BAUTO is the sole distributor and importer of Mazda vehicles in Malaysia . It is principally involved in the:
i. Distribution and retailing of Mazda vehicles
ii. Provision of after sales services for Mazda vehicles
The group operates a nationwide sales network of four branches and 69 dealers. Its associate company, Mazda Malaysia SB (MMSB) undertakes the local assembly of Mazda vehicles using locally manufactured and imported Mazda parts. The vehicle assembly is done by third-party contract assembler Inokom Corp SB at the latter’s plant in Kulim, Kedah.
i. Distribution and retailing of Mazda vehicles
ii. Provision of after sales services for Mazda vehicles
The group operates a nationwide sales network of four branches and 69 dealers. Its associate company, Mazda Malaysia SB (MMSB) undertakes the local assembly of Mazda vehicles using locally manufactured and imported Mazda parts. The vehicle assembly is done by third-party contract assembler Inokom Corp SB at the latter’s plant in Kulim, Kedah.
Industry Outlook: Malaysia
Flattish growth going forward
The YTD total industry volume (TIV) has exceeded initial expectations, with the industry registering a growth of 5.7% y-o-y. The industry’s growth in 1H 2013 was slow, largely due to the uncertainties surrounding the 13 th General Election that was held in May that year. Consumers were cautious with their vehicle purchases in anticipation of lower car prices. Auto sales have subsequently rebounded and we expect 2013’s TIV to exceed 650,000 units. Volume growth was helped by the introduction of value-for-money (VFM) models by various distributors. In 2014, we forecast a TIV of 675,000 units, or a 3.5% y-o-y growth.
Flattish growth going forward
The YTD total industry volume (TIV) has exceeded initial expectations, with the industry registering a growth of 5.7% y-o-y. The industry’s growth in 1H 2013 was slow, largely due to the uncertainties surrounding the 13 th General Election that was held in May that year. Consumers were cautious with their vehicle purchases in anticipation of lower car prices. Auto sales have subsequently rebounded and we expect 2013’s TIV to exceed 650,000 units. Volume growth was helped by the introduction of value-for-money (VFM) models by various distributors. In 2014, we forecast a TIV of 675,000 units, or a 3.5% y-o-y growth.
Rising GNI to drive consumer spending
Gross national income (GNI) enjoyed a steady 8.8% CAGR growth in 2000-2012. The GNI per capita is expected to be more than MYR31,000 in 2013 vs MYR30,803 in 2012. This level is expected to grow in the coming years, in line with the Government’s goal to transform Malaysia into a high-income nation by 2020 through the Economic Transformation Programme (ETP). The rising GNI will be a key driver for higher vehicles sales. However, there are risks to consumer discretionary spending in 2014. These risks include: i) the high household debt to GDP of 85.1%, ii) rising living costs from the rationalisation of government subsidies, iii) higher inflationary pressure resulting from the subsidies rationalisation exercise, and iv) a higher interest rate environment going forward. Our base case expectation is for consumer spending to remain resilient in 2014.
Gross national income (GNI) enjoyed a steady 8.8% CAGR growth in 2000-2012. The GNI per capita is expected to be more than MYR31,000 in 2013 vs MYR30,803 in 2012. This level is expected to grow in the coming years, in line with the Government’s goal to transform Malaysia into a high-income nation by 2020 through the Economic Transformation Programme (ETP). The rising GNI will be a key driver for higher vehicles sales. However, there are risks to consumer discretionary spending in 2014. These risks include: i) the high household debt to GDP of 85.1%, ii) rising living costs from the rationalisation of government subsidies, iii) higher inflationary pressure resulting from the subsidies rationalisation exercise, and iv) a higher interest rate environment going forward. Our base case expectation is for consumer spending to remain resilient in 2014.
Source: RHB
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