BJAuto: Earnings Recovered

Results Update

For QE30/4/2016, BJAuto's net profit was mix- rose 26% q-o-q but dropped 7% y-o-y to RM52 million while revenue rose 2% q-o-q or 26% y-o-y to RM534 million.Revenue rose q-o-q mainly due to improvement in sales mix although sales volume of Mazda vehicles in Malaysia and the Philippines decreased marginally. In line with higher revenue, lower operating expenses and marginal improvement in gross profit margin, pre-tax profit increased by RM15.1 million or 25.9%.


Table: BJAuto's last 8 quarters' financial performance


Chart 1: BJAuto's last 16 quarters' financial performance

Valuation

BJAuto (closed at RM2.28 yesterday) has a PER of 13 times (based on last 4 quarters' EPS of 17.35 sen). While the PER is fair, what's really attractive is its high dividend yield of 7.5%. This high dividend payout will likely continue as the management team will need the dividend payment to repay its SPV's borrowing.

Corporate Development

Since my last note, BJAuto had announced a Management Buyout whereby a Special Purpose Vehicle (SPV) will buyout its management team's 10%-stake in BJAuto and BJCorp's 22%-stake (held by its subsidiary, BGroup). This buyout, which will be financed by a loan of RM406 million, is viewed positively because it reflects its management's confidence in the company, assured a high level of dividend payout (in order to repay the SPV's borrowing) and clear the share overhang from BJCorp. Since the announcement, a few research houses have reaffirmed their rating for the stock- valuing it at around RM2.50. For more, go here.

In addition, BJAuto secures the distributorship for the Korean cars, Ssangyong in Malaysia. Its Philippines subsidiary has been distributing this make since the beginning of the year. This news only received lukewarm reaction as Ssangyong is not well-known and it is not expected to contribute significantly to either the top-line and the bottom-line in the near-term.

Technical Outlook

BJAuto has been moving sideways between RM2.35 & RM1.90 in the past 10 months. A tentative medium-term uptrend line, S1-S1 with support at RM2.30 may have formed. Until a convincing breakout above RM2.35 (preferably RM2.40), range-bound trading will probably prevail.


Chart 2: BJAuto's weekly chart as at Jun 13, 2016 (Source: Share Investors)

Conclusion

Based on good financial performance and good dividend yield, BJAuto's rating is kept as a HOLD. This rating will be raised to a BUY if the share price can break above the RM2.35-2.40 level.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, BJAuto.