BAUTO: Revenue & Profits Recovered

Results Update

For QE31/10/2017, BAuto's net profit increased 10% q-o-q to RM22 million while revenue rose 21% q-o-q to RM472 million. Compared to the same quarter last year, net profit dropped 46% on a 4%-decline in revenue.  Group  revenue rose q-o-q mainly due to higher sales volume arising from the newly launched CX-5 model in both domestic and the Philippines market since the beginning of October 2017. Profits rose q-o-q primarily due to improvement in unit sales from the new CX-5 at full margin in both domestic and the Philippines operations.


Table: BAuto's last 8 quarters' financial performance

From the graph below, we can see that BAuto is sacrificing margin in order to grow its sales volume. Hopefully this strategy can be slowly withdrawn with the introduction of new models as well as improvement in consumers' sentiment.

Graph: BAuto's last 22 quarters' financial performance (with profits changes capped at 100% on the left [A] and profit uncapped on the right [B])

Valuation

BAuto (closed at RM2.15 last Friday) has a fair PER of 127 27 times (based on last 4 quarters' EPS of 7.8 sen). At this PER, BAuto is deemed fully valued. However BAuto paid good dividend, with a fair attractive dividend yield of  4.2%.

Technical Outlook

BAuto has broken to the upside of its large triangle at RM2.05 in early September. Thereafter it has been trading sideways between RM2.00 & RM2.13. Last Friday, it broke above that trading range (or, above the line connecting the peaks for past 2 months, AB). This could be the signal for the next upleg in the share price.


Chart 1: BAuto's weekly chart as at Dec 8, 2017 (Source: Malaysiastock.biz)


Chart 2: BAuto's daily chart as at Dec 8, 2017 (Source: Malaysiastock.biz)

Conclusion

Based on improved financial performance and mildly bullish technical outlook, I revise the rating for BAuto from a REDUCE to a HOLD. If you wish to trade the technical breakout, you may do so but you may have to set a stop loss in case the breakout fails. Good luck!

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.