Berjaya Auto - The Stars Remain Aligned

Reiterate BUY with a higher TP of MYR2.15 (+8%) as we raise our FY15 earning forecast by 10% on higher vehicle sales from the Philippines operation. Our TP is pegged to an unchanged 12x FY15 PER, in line with peer valuations.
BAuto is a beneficiary of the revised NAP, as it embarks on more CKD programmes for its SKYACTIV models (ie Mazda3, Mazda6) which are exempted from duties under the energy efficient vehicles (EEVs) definition.
BAuto remains a growth stock (3-year earnings CAGR of 51%) with undemanding valuations (10.3x FY15 PER).

What’s New

After a recent management update, we adjust our FY14/15/16 forecasts by -6%/+10%/+16%. The shave in FY14F earnings is due to expected lower domestic vehicle sales of 9.5k units vs 11k units previously due to shortage of supplies from Japan. The higher FY15/16F earnings are largely due to an upgrade in our vehicles sales assumption at its Philippines operations by 59%/100% to 3.5k/5k units.Management guided that Philippines vehicle sales for 8MFY4/14 have reached 1,405 units, hitting 64% of our revised forecast of 2.2k units for FY4/14.

What’s Our View

BAuto remains our top pick within the auto space for three key reasons: (i) robust demand for its fresh and attractive SKYACTIV models which will anchor its strong earnings growth, (ii) further upside bias in earnings from the Philippines operation and potential business expansion into Indonesia which is under discussion, and (iii) room for margin expansion from suppressed JPY/MYR forex and excise duty exemption as BAuto increases the production of its Mazda SKYACTIV models that qualify as EEVs.
We are also excited about BAuto's aspiration to build up its regional presence. Following its successful foray in the Philippines, BAuto now eyes a partnership with a local player for distribution of Mazda vehicles in Indonesia. A successful foray into this market will widen BAuto's earnings base and warrant a further re-rating.
Source: Maybank Research - 21 Jan 2014