A confidence booster to investors

The sale of Berjaya Group’s (BGroup) stake in BAuto to a special purpose vehicle (SPV) that is 33%/67% owned by BGroup and the current management of BAuto (led by CEO Datuk Seri Ben Yeoh) would be positive in that it would signify management’s confidence in the company. Further catalysts could, in our view, include potentially higher dividend payouts in the future as well the listing of its Philippines operations. Maintain BUY; MYR2.40 TP (11.5x CY17 PER) is unchanged.

Management participation?

The press reports that an SPV is to be set up to purchase BGroup’s 21.88% stake in BAuto as well as BAuto’s current management’s 10% stake in the company, for a total sum of MYR767m (MYR2.10/shr). BGroup’s portion will be satisfied by a 33% stake in the SPV (worth MYR120m) and cash amounting MYR406m, to be funded by bank borrowings. Completion of this exercise would see BGroup owning a 10.6% indirect stake in BAuto while key management would have a larger 21.3% indirect stake in the company.

Higher dividend payouts?

Such an exercise would not surprise and we believe investors would be comforted by management’s confidence in the future prospects of BAuto. Given that the SPV would have to gear up to undertake this acquisition, we think it may be possible for BAuto to raise its dividend payout ratio from an estd. 50% presently to possibly as high as 70% to help defray the acquisition cost. Based on a 50% DPR, FY16 yields are decent at almost 4% currently.

Wild card: Listing of its 60%-owned Philippines ops?

BAuto’s operation in Philippines continues to gain traction and will soon have a 3-year track record that would allow it to explore IPO opportunities. There could be much value to unlock, in our view, given that car sales in the Philippines have been buoyant, with a 19% 4-year CAGR from 2011-2015 (1M16 TIV: +28% YoY).

Source: Maybank Research - 14 Apr 2016