BAuto: Earnings Slid Further

Results Update

For QE31/10/2016, BAuto's net profit dropped 25% q-o-q or 42% y-o-y to RM31 million while revenue decreased by 4% q-o-q or 13% y-o-y to RM473 million. Group revenue dropped q-o-q by RM20.4 million or 4.1% to RM473.2 million largely due to lower sales volume recorded by the Malaysian operations as domestic sale was impacted by weak consumer sentiment and competitors' heavy discounting promotion. However, this was mitigated by better sales performance from the Philippine operations. In line with lower revenue, compressed profit margin and lower profit contribution from associated, the Group pre-tax profit dropped q-o-q by RM12.2 million or 20.8% to RM58.6 million.


Table: BAuto's last 8 quarters' financial performance


Graph: BAuto's last 18 quarters' financial performance

Valuation

BAuto (closed at RM2.06 at end of the morning session) has a fair PER of 14 times (based on last 4 quarters' EPS of 14.4 sen). BAuto paid good dividend, with an attractive dividend yield of  8.7%. This means that BAuto is fully valued but it may still hold some appeal due to its high dividend yield.

[Note: Berjaya Auto Bhd (BJAuto) has been renamed Bermaz Auto Bhd (BAuto).]

Technical Outlook

Since it peaked in June 2015, BAuto has been searching for a new and more sustainable uptrend line. Its current uptrend line, S-S3 has just been violated. It will soon be testing the horizontal line at RM2.00. We will see whether this support will last for long. If not, the stock may go to the next support at the horizontal line at RM1.80.


Chart: BAuto's weekly chart as at Dec 9, 2016_3.30 (Source: Share Investors)

Conclusion

Based on weaker financial performance, poor consumer sentiment and mildly negative technical outlook, I revise the rating for BAuto from a HOLD to a REDUCE. 

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.