BAUTO: Strategic Exit from Kia Distribution Expected to Enhance Efficiency

Investment bank RHB has maintained a “Neutral” recommendation for Bermaz Auto, with an unchanged target price of MYR0.61. This follows the company’s recent announcement to cease its distribution of Kia vehicles in Malaysia, a strategic move analysts view as a net positive for the group, primarily driven by anticipated cost efficiencies.

Performance Review and Strategic Rationale

Bermaz Auto revealed on November 28 that it would discontinue its role as the distributor for Kia vehicles in Malaysia, with the change effective January 1, 2026. This decision aligns with Kia Corporation’s shift to a principal-led distribution model in the country. Historically, Kia sales volumes have been declining, making up less than 1% of total industry volume in FY25, with management indicating that the Kia segment has been loss-making for several consecutive quarters.

Analysts view this strategic divestment as “slightly positive,” enabling Bermaz Auto to concentrate resources on its core Mazda and Xpeng brands. Significant Kia-related operating costs, including marketing, overheads, and inventory carrying expenses, are expected to decrease, thereby improving overall group profitability and efficiency. Despite this positive development, the investment bank notes that earnings remain unchanged at this juncture, pending further details from management.

Future Outlook and Market Dynamics

The transition for Kia in Malaysia is expected to mirror similar restructuring seen in Thailand, involving a renewed focus on product launches, electric vehicle marketing, and a revamped dealer network. However, the non-national automotive segment continues to face intense competition, leading to a cautious outlook for the stock.

Key downside risks highlighted in the report include softer-than-expected vehicle orders, sustained intense competition, and potential changes in excise duty for completely built-up (CBU) electric vehicles. Conversely, a reversal of these factors could present upside opportunities. The stock currently trades at 6.6x CY26F P/E, which is in line with its historical average, and offers a projected FY26F dividend yield of 9%, which may provide some share price support.