BAuto: Earnings Dipped Slightly Q-o-Q

Results Update

For QE31/7/2018, BAuto's net profit dropped 12% q-o-q but rose 149% y-o-y to RM50 million while revenue dropped 15% q-o-q but rose 24% y-o-y to RM485 million.

Group revenue dropped q-o-q mainly due to lower sales volume from both the domestic and the Philippines operations. Although domestic demand for the new CX-5 model was very strong for the quarter under review but its sales volume was down against preceding quarter because of supply constraint from MMSB. The Group did not anticipate the Government to revise the GST from the standard rate of 6% to 0% in June this year which caused the surge in demand for passenger cars and thus affected the production plan of MMSB which required time to step up its production volume. Group pre-tax profit for the current quarter under review dropped by RM6.4 million or 8.7% primarily due to lower share of profit contribution from MMSB as a result of lower production volume on the new CX-5 mode.


Table: BAuto's last 8 quarters' financial performance

Graph: BAuto's last 25 quarters' financial performance  

Current Year Forecast

With the implementation of SST on 1 September 2018, the Group is absorbing the SST for customers who have placed their bookings for Mazda cars prior to 1 September 2018, for which the delivery of the cars will take place after the said date. This is to build customer loyalty and is expected to increase costs and reduce the Group’s profitability in the coming quarter. The impact may be mitigated, however, through lower sales volatility after August this year with potentially higher sales volume, reduced marketing and advertising expenses as well as dealer incentives.

Financial position

As at 31/7/2018, BAuto's financial position is deemed satisfactory with current ratio at 2.55 times and total liabilities to total equity at 0.62 time.

Valuation

BAuto (closed at RM1.99 last Friday) has a fair PER of 13.5 times (based on last 4 quarters' EPS of 14.69 sen). At this PER, BAuto is deemed fairly valued. However if its earning for next quarter were to decline due to lower sales in Malaysia, the PER will rise. We will have to wait and see how much sales volume will normalize in the current quarter.

Technical Outlook

BAuto has been moving in sideways manner - with slight upward bias - for the past 3 years. For now, the range is between RM1.85 and RM2.40.


Chart: BAuto's weekly chart as at Sep 14, 2018 (Source: Malaysiastock.biz)

Conclusion

Based on satisfactory financial performance, fair valuation and mildly positive technical outlook, I maintain the rating for BAuto from as a HOLD.

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.