BAUTO: Automotive Group Misses Estimates as Operational Headwinds Persist

An automotive group’s first-quarter FY26 (April) net profit significantly missed both the investment bank’s and Street’s estimates, largely due to loss-making results from associates and a higher-than-expected effective tax rate. Core profit for the quarter plummeted to MYR9m, marking a substantial decline of 58% quarter-on-quarter (QoQ) and 87% year-on-year (YoY).

This underperformance led TA Securities to maintain its NEUTRAL rating, with a revised target price of MYR0.61, down from MYR0.70, indicating a 10% downside from the previous target. The counter is currently trading at 7.8x CY26F P/E.

Performance Review

Revenue for 1QFY26 slipped by 7% QoQ and 42% YoY, primarily driven by weaker sales volume in both Malaysia (-18% QoQ, -59% YoY) and the Philippines (+3% QoQ, -17% YoY). EBIT also saw a significant decline of 19% QoQ and 67% YoY, settling at MYR29m, as margins narrowed to 5.9% (from 6.7% in 4QFY25) due to a less-favourable product mix. The effective tax rate climbed to 30%, surpassing initial forecasts of 24%.

Associates recorded considerable losses, led by Inokom Corp (MYR-5.7m), followed by Kia Malaysia (MYR-3.2m), and Mazda Malaysia (MYR-0.2m). These losses were attributed to a weaker export market in Thailand and softer Kia sales. The group also announced a 1QFY26 DPS of 0.75 sen, reflecting a payout ratio exceeding 100%.

Challenges and Headwinds

The operating environment remains challenging due to fierce competition within the non-national segment in Malaysia and the entry of new Chinese marques. This competitive landscape, coupled with softer-than-expected orders and deliveries, and resurgent supply chain constraints, are identified as key downside risks. Additionally, Mazda’s margins may remain compressed due to ongoing discounts offered to clear turbo and diesel models.

Future Outlook and Growth Drivers

Despite the current challenges, a gradual QoQ recovery is anticipated, underpinned by a broader sales recovery. Key drivers include stronger Total Industry Volume (TIV) numbers, the launch of new Mazda CX-60 and CX-80 models (which have garnered 300-500 bookings), and the expected recognition of approximately 500 Mazda3 bookings by the end of October 2025. The healthy margins of around 10% from Xpeng’s X9 model are also expected to contribute positively.

However, TA Securities has revised its FY26F-28F earnings forecasts downwards by 31%, 16%, and 11% respectively. This adjustment reflects lower contributions from associates, a higher effective tax rate, and weaker Mazda margins, though sales volume assumptions remain unchanged.