Berjaya Auto Bhd
(Jan 9, RM3.32)
Maintain add with target price (TP) of RM4.44: Bucking the industry trend, BAuto continues to thrive in the increasingly competitive local auto industry, with its Philippine venture continuing to perform admirably.  Our recent meeting with management strengthened our conviction that Berjaya Auto is on track to sustain its impressive growth rate, supported by exciting new models and increased localisation of its existing models.

We continue to value the stock at 14 times 2016 price-earnings ratio (PER), attaching a 10% premium over its peers’ average PER in view of its higher growth trajectory. We reiterate our “add” call on the stock, which is our top pick for the sector.

The successful launch of its upcoming new models and higher-than-expected sales volume are potential rerating catalysts.

We had a meeting with BAuto’s management recently and it reiterated that it is on schedule for its new model launches this year, namely the Mazda 2 launch at end-January and the Mazda CX-3 introduction slated for July 2015.

In addition to the new models, BAuto will also introduce the facelift version of its best-selling model, the Mazda CX-5.  The preparation for the commencement of assembly of completely knocked down (CKD) models of the Mazda 3 and Mazda 6 is also on track, with the assembly testing of the Mazda 3 now underway.

It is also excited about the growth prospects of its Philippine operations in 2015, supported by the robust sector growth in the country. Thanks to the new models and increased localisation of its existing models, we remain highly convinced that BAuto is on track to surpass its sales target for Malaysia of 12,000 units in financial year 2015 (FY15) and 16,000 units in FY16.

We expect the new Mazda 2 to provide stiff competition to the existing models in the B-segment, while the new CX-3 compact sport utility vehicle (SUV) should at least replicate the huge success of the CX-5 model, due to the increasing popularity of compact SUVs.

We are also positive on BAuto’s commitment to increase its CKD model line-up as  a platform for more robust sales growth.

Accumulate the stock to ride on BAuto’s exciting growth, which is our top pick for the sector.

It has been consistently outperforming the industry growth rate in Malaysia and the Philippines by far, and its growing net cash position offers potential for higher dividend payouts or expansion opportunities. — CIMB Investment Bank, Jan 8

This article first appeared in The Edge Financial Daily, on January 12, 2015.