Berjaya Auto Bhd
(Oct 16, RM3.08)
Maintain “buy” with target price (TP) of RM3.50: We recently hosted Berjaya Auto (BAuto) on a two-day non-deal roadshow (NDR) in Singapore and met with over 15 fund managers. The management was represented by the group’s non-executive director Datuk Francis Lee.
Institutional funds were generally receptive towards BAuto’s promising business direction in Malaysia and the Philippines, and potential venture into Indonesia. While a foray into the Indonesian market will expand BAuto’s regional footprint, management is concerned about regulatory instability post recent election. For now, the management has guided for higher quarterly dividend payouts due to a low capital expenditure requirement. Investors were mostly concerned about BAuto’s future sales growth, given the limitation of the 30%-owned Mazda Malaysia Sdn Bhd (MMSB)’s production capacity.
MMSB is currently in talks with Sime Darby Motors Sdn Bhd for a joint venture to build a dedicated state-of-the-art paint shop within the vicinity of Inokom Corp Bhd’s Kulim plant. The management expects the paint shop to cost from RM150 million to RM500 million, depending on the level of automation, and to be completed in two years upon confirmation of an investment decision.
BAuto’s growth trajectory (30% three-year net earnings compound annual growth rate) is on track driven by its attractive new launches and capacity expansion. We see potential positive surprises to earnings from: i) stronger-than-expected demand for the soon-to-be-launched Mazda-2, ii) surging total industry volume in the Philippines (+28% year-on-year in eight months of financial year 2014); and iii) favourable foreign exchange. — Maybank IB Research, Oct 16
This article first appeared in The Edge Financial Daily, on October 17, 2014.