KUCHING: Berjaya Auto Bhd’s (Berjaya Auto) financial year 2016 (FY16) earnings were well within expectations while also coming in above the expectations of other analysts.
Berjaya Auto noted in a filing on Bursa Malaysia that for the financial year ended April 30, 2016, the group registered a pre-tax profit of RM278.7 million, as compared to the previous year which reported a pre-tax profit of RM299 million.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Berjaya Auto reported net profit of RM52 million for the group’s fourth quarter of 2016 (4Q16), which brought FY16 core earnings to RM202 million.
This was well in line with expectations at 102 per cent of MIDF Research’s FY16F and consensus.
On the other hand, Berjaya Auto’s FY16 results beat the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) estimate but was within consensus estimate, as the group reported a 12 months of 2016 (12M16) profit after tax and minority interest (PATAMI) of RM198 million, making up 107 per cent/101 per cent of its/consensus estimate.
“The positive deviation was mainly due to stronger earnings derived from strong sales driven by the better-than-expected reception of Mazda flagship models namely Mazda2, Mazda3 and CX-5 in both domestic and Philippines markets,” Kenanga Research said.
Kenanga Research noted that a surprise special dividend of 7.5 sen was declared together with an interim dividend of 2.5 sen, bringing year to date (YTD) dividend payment to 16.9 sen.
This aced the research arm’s anticipated dividend of nine sen due to the unexpected special dividend pay-out which resulted in a pay-out ratio of 98 per cent.
“Excluding the special dividend, net dividend paid would have met our expectations,” it said.
MIDF Research noted that the total 16.9sen per share dividend for FY16 implies some 7.4 per cent yield.
The research arm further noted that given Berjaya Auto’s strong free cash flow equity (FCFE) yield, this level of dividend looks sustainable, barring merger and acquisition (M&A) plans going forward (which can still be funded by Berjaya Auto’s RM372 million net cash).
It said that plant capital expenditure (capex) (which is where the bulk of capex is for an auto company) is undertaken by 30 per cent-owned Mazda Malaysia Sdn Bhd which is now self-funding.
As MIDF Research had argued in its previous quarter results note, the bulk of the old CX5 run-out was done in 3Q16.
The research arm noted that run-outs typically involve a lot of dealer incentives to clear off inventories of the old model which impacts margins quite a lot.
It further noted that on the bright side the pain had been taken and the absence of this meant 4Q16 will show meaningful margin recovery sequentially, as can be seen from the results.
“There was also a fair bit of (dealer) incentive for the Mazda 2, which sustained in 4Q16, but this was more than offset by the recovery in margins from a better model mix, i.e. sales resumption of the higher margin CX5 and absence of run-out incentives to dealers.
“The CX5, in particular the 2WD variant, currently entail some two months waiting list. The CX5 is Mazda’s largest contributor accounting for 30 per cent-40 per cent of Mazda total industry volume (TIV),” the research arm said.
On another note, MIDF Research highlighted that at current level of Japanese yen/ringgit, management does not see much reason to lock in rates and as such, Berjaya Auto will face cost pressures going forward from a stronger Japanese yen.
The research arm saw possibilities of earnings revisions in the near-term, but noted that it has also yet to factor in potential contribution of the CX3 completely knocked down, scheduled to come on-stream end-current year 2016.