MBMR: Associate Contributions Propel Automotive Group’s Earnings Above Expectations
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM4.60 (-15.6%) |
| Last Traded | RM5.45 |
| Recommendation | SELL |
A recent investment bank research report indicates that a key automotive group’s third-quarter fiscal year 2025 (3QFY25) core net profit surpassed analyst expectations, primarily driven by stronger-than-anticipated contributions from associates. While the performance exceeded the firm’s projections, it remained within consensus full-year estimates.
Performance Review
For 3QFY25, the group’s core net profit saw a modest 1.6% year-on-year increase, even as revenue experienced a slight 0.4% decline. However, the cumulative nine-month fiscal year 2025 (9MFY25) core net profit recorded a 2.7% year-on-year decrease, accompanied by a marginal 0.8% reduction in revenue. This weaker cumulative performance was largely attributed to softer market demand and lower contributions from joint ventures.
Delving into divisional performance, the Motor Trading Division’s 9MFY25 Profit Before Tax (PBT) improved by 7.2% year-on-year, also bolstered by increased contributions from associates. Conversely, the Auto Parts Division’s PBT declined significantly by 20.1% year-on-year. This downturn was linked to lower sales volumes, shifts in product mix, and a one-off settlement related to supplier claims.
The group announced a second interim dividend of 7.0 sen per share and a special single-tier dividend of 10.0 sen per share for the quarter, bringing the total dividend for 9MFY25 to 39 sen per share, a decrease from 45 sen per share declared in the same period last year.
Future Outlook and Challenges
In light of the strong performance in the preceding period and the fulfillment of most backlog orders, the investment bank anticipates a moderation in Malaysia’s Total Industry Volume (TIV) for 2026. The report highlights that the automotive market is becoming increasingly competitive, suggesting that maintaining market share across both traditional and electric vehicle (EV) segments will likely lead to margin and profit erosion.
The EV segment, in particular, presents a dual landscape of opportunities and challenges. Increased competition from both local and international players, combined with high vehicle prices and limited charging infrastructure, are expected to exert pressure on sales and margins. The group’s ability to sustain its market share and profitability in FY26 will hinge on striking the right balance between competitive pricing strategies, operational efficiency, and offering value-added products.
Consequently, the investment bank has revised its FY25-FY27 earnings forecasts upward by 1.7%-7.7%, primarily reflecting the enhanced contributions from associates.
Analyst Recommendation
Despite the upward revision in earnings forecasts, the investment bank has maintained a SELL recommendation on the automotive group. The target price has been raised to RM4.60 per share (from the previous RM4.31 per share), based on a CY26 Price-to-Earnings (PER) ratio of 6x. This new target price still represents a significant discount of 15.6% from the last traded price of RM5.45.
The cautious stance on the group’s earnings outlook is attributed to expectations of moderating industry volumes, intensified competition, and persistent cost pressures that are likely to continue compressing margins.
