MIDF noted that BAuto’s 1HFY23 result beat expectations. The group reported a core net profit of RM66m an impressive +149%yoy for its 2QFY23, which brought 1HFY23 core earnings (normalized for RM0.7m ESOS expense) to RM117m (+212%yoy), accounting for 64%/66% of/consensus FY23 estimates. The outperformance against forecast was mainly due to stronger than expected core operating margins and associate contribution.
In line with higher earnings, the group announced an interim dividend of 3.5sen/share which more than doubled that in 2QFY22. The cumulative interim dividend for 1HFY23 is more than triple last year’s at 6.5sen/share, implying 65% payout ratio, closely tracking our target of a 70% payout.
BAuto is currently sitting on outstanding bookings of 8.5K units for the Mazda brand, equivalent to 7 months of Mazda TIV and makes up 60% of MIDF’s CY23F Mazda TIV. Less than half (i.e., 45%) of the booking bank comprises orders carried over from the tax holiday. Kia and Peugeot meanwhile entail collective order backlog of 1.5K units equivalent to 5 months of collective TIV of the 2 brands. The sizeable order backlog provides strong revenue visibility for the group moving into CY23.
The house is re-affirming its BUY call on BAuto at a higher TP of RM2.67 (from RM2.36 previously) to reflect the
upward earnings revision. Valuation continues to peg BAuto at 15x FY23F earnings, at par with its 5-year historical mean.
The group has morphed into a multi-brand auto conglomerate following its recent brand acquisitions, which is driving above-industry earnings and volume growth throughout the forecast horizon.
Coupled with a reasonably undemanding valuation of 11.2x FY23F PER against an expected earnings CAGR of +23% over our forecast horizon, as well as an attractive dividend yield (6.3%-7.2%), BAuto remains one of MIDF’s favorite picks in the sector. Key catalysts: Sustained earnings improvement for underlying Mazda operations on improving margins and demand recovery, A weaker JPY, Rollout of new Kia and Mazda models – CKDs from 1QCY23F onwards, (4) Budget 2022’s EV duty exemptions which may incentivize consumer takeup of EV models – the firm is well positioned to capitalize on this with ready EV models from Kia (EV6), Peugeot (2008 EV) and Mazda (MX30 EV).
