KUALA LUMPUR, Oct 20 (Bernama) -- Bursa Malaysia’s benchmark index edged higher at the close as bargain hunting emerged following Monday’s sharp sell-off, although it narrowly failed to reclaim the 1,600 level, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) gained 3.83 points, or 0.24 per cent, to 1,599.58 from Monday’s close of 1,595.75. The index opened 3.18 points lower at 1,592.57, marking its intraday low, and reached an intraday high of 1,602.83 in early trading. On the broader market, decliners outnumbered gainers 751 to 331, while 499 counters were unchanged, 1,259 untraded and 10 suspended. Turnover rose to 2.86 billion units worth RM2.42 billion against Monday’s 2.49 billion units worth RM2.38 billion.
Last week, we met with Berjaya Auto (BAuto)’s Director, Dato’ Francis Lee and also visited Inokom Corporation (Inokom) in Kulim, Kedah. Inokom is the contract manufacturer of various marques including Mazda vehicles. Currently, BAuto owned 29%-stake in Inokom. At Inokom, we were taken on a tour around the assembly facilities of Mazda vehicles. Key takeaways from the meeting are (i) opportunity to improve export market, and (ii) more room for growth in the Philippines market in the medium term. However, we cut our FY16-17 earnings forecast by 3%-6% due to the revision in our assumption for JPY currency rates. Nevertheless, we are still positive on BAuto as we believe it should perform better than its peers in terms of earnings growth due to a more superior margin, stable dividend payout and net cash position. Our Outperform call on BAuto is maintained at a revised target price of RM2.58 (previously RM2.65) pegged to 13x FY17F.
- Opportunity to improve export market. Since June 2013, Mazda Malaysia (MMSB) has been exporting locally assembled CX5 model to Thailand. The target is to export more than half of the production to more overseas markets e.g. Iran, Philippine and Indonesia. Export will improve the economies of scale of CX5. With this >50% exports, yen exposure will be mitigated to a certain extent and help to improve margin. Currently the plant in Inokom is only operating at one working shift, with a production capacity of 20k units but it could do up to 30k units if it operates in two working shifts. We understand that Mazda Japan will invest USD20m in a new Mazda paint shop, which is expected to complete by end of this year. This would allow Mazda Malaysia to increase its production capacity to 40k units. The new paint shop is expected to also produce Mazda’s patented color of soul red and pearl white, which are currently only available for CBU units.
- More room of growth in Philippines market. YTD 9MFY16 sales volume for Philippines was already at 3,500 units, hence we expect the sales volume of FY16F to exceed our expectations of 4,200 units by next quarter. Currently BAuto have 16 third party dealers for the 3S centres. By end of 2016, management expects to have an additional 2 new dealers. We understand that BAuto is in the process of buying a piece of land in Philippines, which is strategically located in between the ports and Metro Manila. The company plans to build a Pre-Delivery Inspection (PDI) and warehouse centre on the 3 hectares land, which might cost them about RM24m-25m. Currently it pays a rental to 3rd parties’ warehouses before distributing the vehicles to the dealers. Hence, it will be wise for them to have its own warehouse centre in the future to accommodate an increasing sales volume.
Source: PublicInvest Research, 25 March 2016
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