BJAuto: Strong Yen A Major Concern

Berjaya Auto FY16Q2 Financial Result

BJAuto (RM mil)	FY16Q2	FY16Q1	FY15Q4	FY15Q3	FY15Q2
Revenue	542.4	512.5	424.3	388.8	508.8
Operating Profit	70.9	68.0	72.0	65.1	77.0
OP%	13.1	13.3	17.0	16.7	15.1
Assoc profit	1.2	4.2	3.6	-0.7	2.4
PBT	73.7	73.5	77.2	66.2	81.0
PBT%	13.6	14.3	18.2	17.0	15.9
PAT	55.9	55.0	57.0	48.5	59.6
PATAMI	53.1	52.2	55.3	46.5	57.5
MAS Rev	425.7	424.5	360.2	319.8	436.3
MAS OP	61.4	58.6	67.2	57.8	70.1
PHI Rev	116.7	88.1	64.1	69.0	72.6
PHI OP	9.9	9.8	6.0	6.8	7.4
Total Equity	491.4	462.0	476.6	447.2	418.6
Total Assets	865.0	805.4	732.0	751.6	688.1
Trade Receivables	125.6	149.1	104.7	81.3	87.1
Inventories	341.1	293.2	215.6	223.7	188.6
Cash	248.8	221.9	280.8	318.7	313.1
Total Liabilities	345.9	321.8	236.4	286.6	255.6
Trade Payables	195.6	184.3	121.4	122.3	84.3
ST Borrowings	0.0	0.0	0.0	0.0	0.0
LT Borrowings	0.0	0.0	0.0	0.0	0.0
Net Cash Flow	-42.0	-61.7	90.3	126.2	126.8
Operation	52.9	5.5	222.1	226.3	172.8
Investment	0.3	0.5	-38.3	-33.2	-2.2
Financing	-95.2	-67.7	-93.6	-66.9	-43.8
Dividend paid	94.1	68.4	98.1	70.8	44.4
EPS (sen)	4.66	4.58	6.80	5.74	7.12
NAS (sen)	43.16	40.44	58.59	55.03	51.80
D/E Ratio	NC	NC	NC	NC	NC

There is really nothing much to discuss regarding BJAuto's latest FY16Q2 result. 

Revenue hits record high but profit margin drops.

This is largely due to unfavourable sales mix, unfavourable forex, and higher operating cost due to expansion of 3S and repair centers.

It remains debt-free, asset-light and continue to pay good quarterly dividend.

It has declared a second interim dividend of 2.5sen. Total dividend in FY16 is 4.75sen so far.

I invested in BJAuto simply because I like Mazda and I have confidence in Mazda's prospect in Malaysia.

I don't expect its FY16 financial result next year to be better than FY15. 

I just think that in the long run, it will continue to sell more cars.

I expect Mazda to challenge other Japanese auto makers in the country.

In year 2014, Mazda sold 11,382 vehicles representing 1.7% market share, while Nissan sold 39,932 vehicles with 6% market share.

So when Mazda manage to sell 40,000 vehicles a year like Nissan did last year, how much revenue and profit can it generate?

In 2014, Toyota & Honda sold 102,035 and 77,495 units respectively.

I think previously Mazda did not do well in Malaysia because of poor distributorship and lack of price competitiveness as they are not locally assembled.

It is not because Mazda's vehicles are inferior to fellow popular Japanese makers.

So when the volume and demand are low, resale value will also be low. This makes Mazda even more unpopular in the auto market.

With more established distribution network in Bermaz, introduction of CKD vehicles, superb SkyActiv technology and futuristic Kodo design, I think Mazda should be on par with Toyota, Honda & Nissan in the future in Malaysia.

These are just my opinion and I might be wrong.

Hyundai, Kia, Ford, Peugeot etc seems to offer great & exciting cars at very competitive price but the challenge they posed to those top Japanese brands here seems to be short-lived.

In other countries which I think their Mazda distributorship should not be too bad like the US, Mazda's sales still trail Toyota by a great distance.

Anyway, globally Mazda's sales have pick up in recent years after the introduction of Kodo design and Skyactiv technology which offer greater fuel-saving.

Mazda Japan does not do much research on hybrid and electric vehicles. So, it is understandable that it does not sell such cars in Malaysia.

This is a concern for me as I think hybrid/electric cars should dominate the future.

However, Mazda does collaborate with Toyota to share the latter's hybrid technology and in return, Mazda will share its Skyactiv engine technology with Toyota.

I think it is a win-win deal for both parties, and Mazda can concentrate to further improve its petrol engine's efficiency. 

Mazda does have a line-up for hybrid car in Mazda 3 in Japan. I'm not sure whether we can see it in Malaysia.

Mazda Skyactiv cars are given EEV (Energy Efficient Vehicle) status in Malaysia which can enjoy some tax incentive.

This tax incentive enables Mazda cars to be priced more competitively compared to others.

The EEV status is determined based on fuel consumption and carbon emission level.

All auto manufacturers are aiming for EEV status for sure. Honda City is already categorized as an EEV.

How fuel-efficient is Mazda's Skyactiv's vehicles?

For comparison, Mazda Biante's (Skyactic 2.0L) fuel economy is rated at 7.4L/100km, compared to Nissan Serena S-hybrid (2.0L) at 6.6L/100km, both with almost similar weight.

Mazda 5 2.0L Skyactiv, which is about 125kg lighter, is rated at 6.6L/100km.

So we can see that Mazda's Skyactiv petrol engine vehicles are very fuel-efficient and almost comparable to some hybrid cars.

Since BJAuto took over the distributorship of Mazda vehicles in Malaysia, it has launched almost all new or facelifted models available in Mazda's lineup.

More recent launches include:

• Dec15 - CX-3 (CBU)
• Aug15 - MX-5 (CBU)
• May15 - CX-5 2.5L facelift (CBU)
• Apr15 - Mazda 3 2.0L (CKD)
• Apr15 - Mazda 6 facelift (CBU)
• Jan15 - Mazda 2 (CBU Thai)
• May14 - Mazda 5 Skyactiv (CBU)
• Mac14 - CX-5 2.5L (CBU)
• Mac14 - Mazda 3 2.0L (CBU)
• Nov13 - Biante (CBU)
• Jun13 - CX-5 CKD
• Mac13 - Mazda 6 (CBU)
• Aug12 - BT50 (CBU Thai)
• May12 - CX-5 (CBU)

It will be good if Mazda can come up with small MPV to rival Avanza which is quite popular here.

However, there is no such Mazda vehicle available in the whole world.

Bermaz has just launched its B-segment crossover CX-3 last week to rival the hot-selling Honda HR-V, even though the price of RM135k (OTR with insurance) definitely does not help in the competition.

I have to admit that HR-V is a great car with great look, which should have lured some potential CX-5 buyers away.

High-spec HR-V is priced at RM118k, and now it is basically everywhere on the road.

Anyway, HR-V is CKD with 1.8L engine & 16-inch rim, while CX-3 is CBU Japan with 2.0L engine & 18-inch rim.

The only way for CX-3 to rival HRV here is to CKD the car and makes the high-spec RM120k, and offer a lower spec at RM100k.

According to analyst, upcoming new launches should be facelifted CKD CX-5, diesel-run Mazda 2/CX-5, CKD Mazda 6 and may be CKD CX-3.

Those diesel engine models will not generate big volume as Euro 5 diesel availability is still very limited in Malaysia.

Bermaz just brought in 2000 units of CX-3 from Japan and will not consider to import from Thailand as it is said that import from Thailand will incur more tax.

So, it will consider to CKD CX-3 in Malaysia and I hope so.

          Mazda CX-3

Mazda Corporation currently 3 plants in ASEAN region

• Thailand Auto Alliance (50:50 JV with Ford)
• Vietnam Vina Mazda (100% local control) 10,000 units/annum (left hand drive)
• Malaysia MMSB (70:30 JV with Bermaz)

The other reason I like BJAuto is because of its assets-light operation. It does not own a manufacturing plant directly so there is no high capex, high depreciation charge and high operating cost.

It just concentrates on retailing and distributing the vehicles.

Mazda's manufacturing operation in Malaysia is controlled by MMSB which is 30% owned by BJAuto.

Its manufacturing activity is carried out by Inokom in Kulim which has a capacity of 50,000 per annum, in which BJAuto also has 24% stake in it.

As Inokom also assembles BMW, Ford, Hyundai, Land Rover and Mini besides Mazda cars, BJAuto is actually not totally about Mazda.

MMSB has its own dedicated body shop, trim & final assembly shop within Inokom. It has recently upgraded its paint shop and this has increased its annual production capacity to 25,000. 

MMSB will import CKD kits from Japan and gives them to Inokom for assembling, and Bermaz will purchase the finished products from MMSB for retail and distribution in Malaysia.

So, BJAuto has shares in all stages: MMSB (30%), Inokom (24%) and Bermaz (100%)

Besides, BJAuto also has 60% stake in distribution of Mazda vehicles in Philippines.

       Mazda Koeru Concept

Year 2016 will be a challenging year for automotive industry in Malaysia, mainly due to weakening of MYR and higher living cost.

BJAuto has hedged MYR/JPY at 3.10 earlier and it will expire at the end of calendar year 2015.

Now the exchange rate stands at above 3.50 level, which is 13% higher than 3.10.

So, it is not hard to predict that its profit margin will come under tremendous pressure next year.

BJAuto has decided not to increase its vehicle's price in the near future. Hopefully this can generate more volume to compensate lower margin.

For me, I will hold BJAuto's shares for long term and there is no real urgency to top up its shares at this moment.

BJAuto paid a total 14.6sen dividend in FY15 (ended Apr15 before bonus issue) including a special dividend of 3.25sen , representing about 55% dividend payout.

With plenty of cash, shareholders can expect dividend higher than its policy of at least 40%.


Malaysia's automotive duty structure for reference:

(sales tax has been replaced by GST since Apr15)