By G. Sharmila
Syariah-compliant Berjaya Auto Bhd delivered impressive 4Q15 results ended April 30, despite the introduction of the GST on April 1. Analysts expect the company to continue its stellar performance, yet consumer spending is anticipated to slow down post-GST. Is it a good time for investors to buy into the stock?
Business model: According to Berjaya Auto Bhd’s profile page on bursamarketplace.com, the company distributes and retails new and used Mazda vehicles in Malaysia and the Philippines. It was incorporated in 2010, listed on Bursa Malaysia’s Main Market in 2013, and is headquartered in Shah Alam.
The company also distributes completely knocked-down vehicles and completely built-up units, and provides after-sales services for Mazda vehicles. It is also involved in purchasing, acquiring, owning, leasing, selling, transferring, encumbering, and dealing in various new automobiles, trucks, and other motor vehicles; and dealing in a range of supplies used by various motor vehicles.
Berjaya Auto distributes Mazda vehicles via its branches and third-party dealers and also operates sales, spare parts, and after-sales services centres.
The company recently posted better-than-expected fourth quarter of financial year 2015 (4Q15) results, simultaneously announcing a fourth interim dividend of 2.75 sen per share and a special dividend of 3.25 sen per share, bringing the total dividend to 14.6 sen per share. According to research firm M&A Securities in a report dated June 12, this is equivalent to a dividend payout ratio of 55%, with a net yield of 4%.
Shareholders and management: Major shareholders of Berjaya Auto include the Berjaya Group (with a 34% stake), Podium Success (6%), and the Employees Provident Fund (6%).
At the company’s helm is chief executive officer (CEO) Yeoh Choon San, who has been leading the company since November 2011. Prior to becoming the CEO, he was an executive director with the company.
Yeoh, who has an educational background in automotive engineering, was previously with big names in the auto industry, such as Proton, Cycle and Carriage Bhd, and the Hyundai Group in Malaysia. Overall, he has over 40 years of experience in the automotive industry, including retail, distribution, and manufacturing.
Share performance: As at June 16, Berjaya Auto’s 52-week trading range was between RM2.23 and RM4.20, according to data from Bloomberg. The stock’s one-year return as at June 16 was 74.17%, which is unsurprising given its steady climb during the past year.
What analysts think: Analysts tracked by KINIBIZ are mostly optimistic about Berjaya Auto, with three research houses (RHB Research, Maybank IB Research, and M&A Securities) maintaining “buy” calls on the stock, while Kenanga Research has an “outperform” rating on the stock.
RHB Research noted in a report dated June 12 that despite the imposition of the goods and services tax (GST) on April 1, Berjaya Auto’s 4Q15 revenue grew 9.2% quarter-on-quarter, while its earnings before interest, tax, depreciation and amortisation (Ebitda) margin expanded to 17.4% (3Q15: 17.1%).
The research house pointed out at the company trades at undemanding valuations and “retains robust growth prospects going into financial year 2016 (FY16) from a strong product pipeline, which helps to secure gains in market share”.
Maybank IB Research believes that Berjaya Auto’s mid-term earnings prospects remain promising with strengthening market share aided by attractive new Mazda product offerings and the company’s presence in the Philippines, a high total industry volume market.
The research house said in a report on June 12 that it also believes that the company is well equipped for acquisitions (ie increasing its stakes in Inokom, MMSB, or BAP) or new ventures or investments (ie Indonesian car market, dedicated Mazda paint shop), to pave the way for future growth.
Others were more cautious in their outlook. Kenanga Research, although noting that the company reported a FY15 net profit of RM215.4 million (a 54% increase from the previous year), believes that consumers will adopt a cautious stance amidst the uncertainties over car prices from the GST implementation, thus affecting the whole automotive industry in second quarter of 2015. The research house expects Berjaya Auto’s 1Q16 sales performance to be partly affected.
“Nonetheless, we see Berjaya Auto to be the least-affected automotive player, with the macroeconomic headwinds to be buffered by its targeted customer base (middle-to-high income groups are able to weather the rising cost of living better than vis-a-vis the lower-income group); sustainable margin on the back of lower import duties from the free trade agreement with Japan and favourable exchange rates (with the huge exposure in Japanese yen, which is currently still on a soft trend); and attractive new models such as CX-3 SUV and MX-5,” the research house said.
Earnings forecast:
StockStalk: There are a couple of things that show that Berjaya Auto is full of promise. Firstly, is its strong product pipeline, as evidenced by the response towards Mazda vehicles in 4Q15, post-GST.
Secondly, the company is in a net cash position (FY15 net cash was RM281 million), which makes it able to afford acquisitions and/or new ventures. Thirdly, the company paid decent dividends for FY15, which could be something investors can look forward to the next financial year.
However, investors need to take into account that consumer spending could become erratic or slow down altogether this year, as people react to the uncertainty surrounding car prices post-GST. If Kenanga Research is right, Berjaya Auto will not lose many customers as the middle-to-high income group makes up its clientele.
All things considered, this is a stock worth looking at for investors who have long-term investment goals. It may not be operating in an ideal environment, but Berjaya Auto has a lot going for it and investors who are patient enough to wait for the GST fuss to end may be richly rewarded.
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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