KEY INVESTMENT HIGHLIGHTS

• BAuto managed to squeeze out a small profit in 4QFY20 vs. our net loss expectation

• FY20 results ahead of ours but below consensus

• Weak 4QFY20 not unexpected; should mark a trough in earnings before recovering from 1QFY21 onwards

• Strong signs of sales improvement post-tax-holiday announcement

• A solid balance sheet positions group well for expansion

• Maintain BUY at unchanged TP of RM1.95

Squeezed out a small profit in a very tough quarter. BAuto’s results were ahead of our estimate as the group managed to breakeven in 4QFY20 vs. our net loss expectation. Its 4QFY20 net profit registered at RM3m, bringing FY20 earnings to RM101m, accounting for 123% of our estimate. However, the results were below consensus at 87% of street’s FY20F.

Weak quarter now behind. The weak 4QFY20 is not surprising as almost half of the quarter was impacted by the MCO which ran from 18th

March till 12th May. 4QFY20 Mazda (Malaysia) TIV fell 52%yoy while BAP volume fell 51%yoy. For the full year, Mazda TIV only registered at 9,484 units (-40%yoy).

Shifting into a recovery year. FY20 (-62%yoy) was a washout year impacted by issues related to price approval delays for the facelift CX5 & the new CX8 in 3QFY20 followed by the MCO throughout half of 4QFY20. However, we expect FY21F earnings to recover +85%yoy off this weak base, assuming no further lockdowns, absence of the price approval issues experienced in 3QFY20 and gradually improving sales boosted by the Jun’20-Dec’20 automotive tax-holiday. Our FY21F earnings (at 12.7k unit sales) and forex assumption of JPY(x100):RM4.00 are left unchanged at this juncture.

Inventory rundown in progress, improvement in sales. BAuto’s 29%-owned Inokom plant has yet to resume operations as the group is looking to pare down its existing 2-3 months’ worth of inventory – 4QFY20 cash was impacted by higher working capital. This should be temporary; the inventory run-down should be accelerated by the potential demand boost from the tax-holiday. Post-tax-holiday announcement last week, daily bookings have risen significantly to around 60/day vs. 20-25/day post-MCO. It is too early to determine if this is sustainable, but definitely a good early indication.

Source: MIDF Research - 12 Jun 2020