Stands To Gain The Most From A Weakened Yen
The weakening of the Japanese yen against the Malaysian ringgit to its lowest level in
seven years has benefitted automobile manufacturers with cost content denominated in
yen. BAUTO’s cost (incurred for CBU units and imported auto parts) is denominated in
yen, and we expect the group’s margin to improve by 3-4ppt following our new yen
assumption. Further impetus could come from the SST extension. Maintain BUY with a
higher target price of RM2.04
WHAT’S NEW
• Benefitting from devaluation of Japanese yen. BAUTO is benefitting from the weakening
yen due to its association with Mazda Malaysia Sdn Bhd, which incurs input costs
denominated in yen. The group’s exposure is primarily comprised of completely-built-up
(CBU) imports denominated in yen for the Mazda brand, as CBUs account for approximately
30% of Mazda’s domestic sales volume (9MFY22), while 60% of the imported auto parts in
the completely knocked-down (CKD) segment is denominated in yen.
• Mazda’s first EV model to be launched at end-22. BAUTO is on track to roll out its first
electric vehicle (EV) – the Mazda MX-30 – which was debuted at the 2019 Tokyo Motor Show
with its body based on the CX-30 compact crossover. While management has not indicated
the actual selling price, it was disclosed that the company is working to get the MX-30’s price
below RM200,000, taking into account the current EV subsidies. Under RM200,000, the MX30’s primary competitor will be the Hyundai Kona Electric, which was introduced in Nov 17
and is available in three models and two battery sizes (39.2 and 64 kWh) with price ranging
from RM149,888 to RM199,888.
• Extension of SST exemption could boost sales further. Note that the Malaysia
Automotive Association (MAA) has petitioned to the Ministry of Finance (MoF) to extend the
automobile Sales & Service Tax (SST) exemption until end-22 in order to allow automakers
to complete their backlog of orders. The SST exemption, which was originally slated to
expire on 31 Dec 20, has been extended three times, and was first introduced in the
Penjana stimulus package to help reduce the consequences of the first Movement Control
Order, which took effect in Mar 20. Recall that BAUTO’s sales during the SST exemption
increased by 17% from Jul 20 to Dec 21.
STOCK IMPACT
• We anticipate 4Q22 results to be comparable to that of 4Q21. With SST exemption
continuing to drive sales and majority of the sales orders being fulfilled before the financial
year ended on 30 Apr 22, we expect BAUTO to deliver net profit of RM60m-65m in 4Q22
(down 3-11% yoy). With 8,926 units sold in 9MFY22, BAUTO is on track to fulfil its sales
target of 13,000 units for Malaysia and the Philippines as production is being ramped up to
clear outstanding orders.
• Introduction of new models to encourage sales growth. BAUTO has just launched the
all-new Peugeot 2008 SUV in Jan 22 and could potentially launch New Landtrek in 3Q22.
BAUTO will offer Mazda’s first EV, the MX-30 in 4Q22, with KIA Sportage and Sorento
following in 3Q/4Q22. The locally-assembled forms of the Mazda CX-30 and KIA Carnival
are still on track to being introduced in mid-22 and are expected to help improve margin.
• The company has a sales target of 18,000 units for 2023 vs our forecast of 17,790
units. The launches of several new models and the full resumption of economic activities
should boost sales to pre-pandemic levels. Should the SST exemption be extended, it will
continue to drive the automobile industry sales.
• Note that the yen has depreciated from JPY0.037 to JPY0.034 currently. Our sensitivity
analysis shows that every RM0.10 depreciation in JPY/MYR from our base-case assumption
of RM3.40 would benefit BAUTO’S earnings by about 1% as 30% of its sales derived from
CBU units and 60% of component cost for CKD unit is denominated in yen.
EARNINGS REVISION/RISK
• Our 2023-24 earnings forecasts are increased by 3% to account for the weakening of the
yen to RM3.40/JPY100 from RM3.70/JPY100.
VALUATION/RECOMMENDATION
• Maintain BUY with a higher target price of RM2.04. This is still based on 13x 2023F
target PE (historical average). Key re-rating catalysts for the stock are: a) localisation of CX30 and Kia Carnival, which will help to improve margin, b) the Kia and Peugeot franchises
gaining traction at a faster-than-expected rate, and c) launches of new model as BAUTO will
offer Mazda’s first EV, the MX-30 in 4Q22 and Peugeot Landtrek in 3Q22, with KIA Sportage
and Sorento following in 3Q/4Q22.