BAUTO: Automotive Sector Faces Headwinds, Earnings Forecasts Trimmed

An investment bank has maintained its Neutral rating on an automotive player, revising down its target price to MYR0.70 from MYR0.86, indicating a 7% upside from the last traded price of MYR0.66. The adjustment comes amid expectations of a challenging quarter and a more cautious outlook for the automotive sector, leading to significant cuts in earnings forecasts for the coming fiscal years.

Performance Review and Outlook

The first quarter of FY26F is anticipated to be the weakest for the company, primarily attributed to fewer working days and softer Mazda sales. Intensifying non-national competition has further pressured the market. Core PATAMI (Profit After Tax and Minority Interests) for the upcoming results announcement on September 11th is projected to be mixed quarter-on-quarter and significantly lower year-on-year, falling below initial forecasts at around MYR14-22 million.

Mazda’s sales volume in 1QFY26 stood at 1,728 units, marking its weakest performance since 1QFY23. While management expects a recovery from this low base, targeting 8,000-9,000 units for FY26F (a 20-30% year-on-year decline), breakeven levels are expected to remain tight due to fierce competition from Chinese marques. Consequently, sales volume assumptions for Mazda and Xpeng have been reduced by 12-13% for FY26F-28F, and margins have been trimmed conservatively.

Market Challenges and Product Pipeline

The industry landscape remains challenging, influenced by several factors. The influx of Chinese marques continues to exert pressure on pricing and market share. Additionally, the planned CBU (Completely Built-Up) EV tax slated for January 2026, coupled with a potential open market valuation (OMV) revision, could elevate EV prices, especially for models like Xpeng. The recent announcement of BYD’s plan to establish a local assembly plant in Tanjung Malim is expected to further widen the price gap between CBU and CKD (Completely Knocked Down) models, increasing competitive intensity.

Despite the headwinds, the company’s product pipeline includes several new launches. The Mazda CX-60, priced at MYR198,900, is set for a September launch, followed by a CX-80 variant with pricing yet to be confirmed. A facelifted CBU CX-5 and a new, unannounced CKD model are slated for CY26 and CY27, respectively. The group aims for monthly sales of 120-130 units for Xpeng, optimistic about its advanced features positioning it competitively against rivals like BYD and Tesla. However, the Deepal launch is likely to be postponed to CY26 from the earlier 2H25, pending price discussions, leading to a revision in Deepal’s sales volume.

Valuation and Recommendation

The company is currently trading at 6x CY26F P/E, slightly above the -2SD level. The valuation has been adjusted by tweaking the target P/E from 7x to 6x CY26F, which results in the MYR0.70 target price. Despite the challenging outlook and earnings cuts, an attractive FY26F dividend yield of 15% may provide support for the share price.