We reiterate our OUTPERFORM call on BAUTO with unchanged TP of RM2.30. BAUTO is expected to launch more high-margin new vehicles ahead especially for the SUV market which is enjoying growing demand, and electric vehicles (EV) which are seeing rising awareness (global EV volume increased 120% in 2021).

The key takeaways from the launching event conference:

1. New high-margin launch. Launching of the popular all-new CX-8 CKD with addition of turbocharged petrol variant is expected to intensify the current back-log orders and at a higher pricing point by RM3k which we believe is to safeguard their margin due to increase in operation cost. CX-8 accounted for as high as 15% and 30% of BAUTO total unit sales and revenue, respectively. Mazda’s current back-log orders is at 10k units, to be fulfilled by 1QCY23, further cementing its high profit margin position without the need to fork additional cost to absorb SST for orders before 30th June 2022.

2. The path to EV market. In response to the EV niche market demand, BAUTO launched the all-new MX-30 EV CBU and all-new KIA EV-6 GT-Line AWD CBU with limited units allocation for the 1st batch, to test the response for a larger CBU volume or a shift toward CKD production which entailed better margin (on average CKD margin is higher by 5% over CBU).

3. Stronger associates’ earnings ahead. Both 30%-owned Mazda Malaysia Sdn Bhd. and 29%-owned Inokom Corporation Bhd are expected to boost capacity, capitalising on exciting new CKD launches including the CX-8 for the export market. We expect both plant utilisation rate to jump above 50% over the next 3 quarters (vs. 30% in FY2021) especially with the expected arrival of automotive parts from the recent re-opening of Shanghai Port.

2022 exciting new launches. New Mazda launches are the all-new CX-3 IPM4 version (Jan 2022), CX-30 IPM4 version (Feb 2022), CX-8 IPM4 version (June 2022) and all-new Mazda MX-30 EV (June 2022). PEUGEOT’s current line-ups are the 2008, 3008 and 5008 SUVs, while upcoming models are Landtrek (3Q 2022), 3008/5008 IPM version (July 2022), all new e-2008 EV CBU (4Q 2022), and 508 Electric Hybrid (in discussion). Kia’s current line-ups for now is Carnival with upcoming models such as Sportage PHEV (3Q/4Q 2022, CKD 2023), EV6/PBV1 EV (4Q 2022), and all new Niro/Sorento (4Q 2022).

Maintain OUTPERFORM with a TP of RM2.30 based on 15x CY23E EPS on par with local peers’ average 1-year Fwd. PER, and at a 15% premium over its Japanese peers’ average PER of 13x given its highest PAT margin ranking among automakers (commanding an average of 8% compared to average PAT margin of both local and Japanese peers at 5%) which also translated to 5-year Fwd. historical mean PER. We like BAUTO as it offers: (i) highest number of high-margin new launches, and (ii) the highest PATAMI margin which is head and shoulders compared to peers.

Risks to our call include: (i) lower-than-expected production volume recovery, (ii) lower-than-expected margin, and (iii) stricter government regulation.

Source: Kenanga Research - 30 Jun 2022