Post management meeting, we remain upbeat on BAuto’s performance in the coming quarters. The group reported a record core PATMI of RM87.8m for 3QFY23 (+33.9% QoQ; +115.8% YoY), boosting 9MFY23 to RM204.6m (+158.9% YoY). Management guided new orders intake remain encouraging despite the ending of SST absorption campaign since end-2022. Margins will remain supported by the strong sales volume and favourable RM/JPY position. Maintain our BUY recommendation with an unchanged TP: RM2.60 based on 14x CY23 P/E.

Result recap. BAuto achieved a new high quarterly profit of RM87.8m in recent 3QFY23, boosting 9MFY23 to RM204.6m (+158.9% YoY). The strong performance was driven by record high group sales volume (combined Mazda, Kia and Peugeot) at 5.8k units for the quarter, contributing to strong revenue and margins.

Strong sales. After achieving record quarterly sales, management is guiding for continuity in coming quarters. This confidence is backed by its strong order backlog of over 7k units (include 1.2k units under PENJANA SST exemption) while new booking intake remain encouraging at more than 1k units/month despite the ending of SST absorption campaign since end-2022. The group has recently launched the CX-30 CKD at an attractive pricing (10-20% lower than CBU unit), as well as the new Kia Sorento CKD. Upcoming new models include Peugeot Landtrek and Kia Sportage. Management is also exploring the potential to introduce Peugeot 2008 EV and Kia Niro EV. Management expects the group sales volume to breach 20k units in FY23 (YTD: 14.9k units) and targets 22k units in FY24.

Protecting margins. With the newly launched CX-30 CKD and also higher mix of sales from 50% SST absorption campaign, margins may be affected in the near term. However, this will be compensated by the expected higher sales volume as well as the favourable position of the appreciated RM against JPY. BAuto has hedged its exposure at 3.33-3.36 RM/JPY for 6 months ahead. Moreover, management expects continued strong contribution from associate MMSB and Inokom.

Dividend. Management is maintaining its commitment for dividend payout 80% of net profit, indicating potential 5.6 sen/share in coming 4QFY23 (YTD dividend of 11.0 sen/share). The group is sitting on a net cash position of RM427.7m (36.8 sen/share) as of 3QFY23, lower QoQ mainly due to inventory built-up (increased by RM100m QoQ). Management indicated possibility of a special dividend, should the cash amount stay above the necessary level, as well as dividend pay-up by associates. Capex is guided to remain minimal at RM5m per annum, as there are no major plans for new 3S centres.

Forecast. We maintain our forecasts at this juncture. Nevertheless, we believe there is potential upside to our forecasts.

Maintain BUY, TP: RM2.60. We maintain BUY recommendation on BAuto with an unchanged TP: RM2.60, based on 14x P/E. BAuto has strong order-book of over 7k units with attractive new models line up. The group also has a healthy balance sheet position with net cash of RM427.7m (36.8 sen/share) as of end 3QFY23.

Source: Hong Leong Investment Bank Research - 15 Mar 2023