| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Performance Review
A recent investment bank research report indicates a challenging period for a key player in the automotive sector, with second-quarter FY26 results coming in below internal expectations but within consensus estimates. Core profit for the quarter saw a substantial decline of 55.5% to RM18.7 million. Cumulatively, the first half of FY26 witnessed an even steeper drop, with core net profit plunging 75.2% year-on-year to RM27.3 million.
Key Challenges and Drivers
The significant profit decline was primarily attributed to a a 14.0% drop in revenue, driven by lower sales volumes. Contributing factors included weaker margins and losses incurred by associate companies, particularly due to retroactive fees and idle capacity costs related to lower-than-anticipated CKD production volumes for Kia vehicles. Domestic operations were further impacted by weaker sales volumes for certain Mazda and Kia models nearing the end of their product lifecycles. The market also faced heightened competition, exacerbated by the increasing influx of low-priced Chinese-made vehicles.
Overall, total sales volume for the first half of FY26 decreased significantly by 35.6% year-on-year to 5,754 units. Key models like the CX-5 and CX-30 CKD experienced sharp year-on-year declines of 61.0% and 45.3% respectively. However, new model launches, such as the Xpeng G6 (launched August 2024) and X9 (launched March 2025), provided some support, bolstering overall sales with 340 units and 410 units delivered, respectively. The board also declared a second interim dividend of 1.25 sen/share for the quarter, bringing the IHFY26 DPS to 2.0 sen.
Outlook and Forecast Revisions
Management anticipates a continued challenging market environment characterized by intensifying competition and aggressive pricing strategies from Chinese-made vehicles. While margins are expected to improve with special incentives from Mazda Japan, sustained competitive pressure from new entrants is expected to erode market share and weigh on sales volumes. The proliferation of Chinese car brands, with their aggressive pricing, advanced features, and shorter product cycles, is likely to further intensify the price war, placing additional pressure on profit margins. Encouragingly, newly launched Mazda CX-60 and Mazda3 1.5L have garnered positive bookings.
Reflecting the weaker 2QFY26 results and increased losses from associates, the investment bank has revised its FY26 earnings forecast downwards by 23.7%. Conversely, the FY27 profit estimate has been raised by 31.0%, factoring in higher margins and sales volumes in line with management’s guidance.
Analyst Recommendation
Following the earnings revisions, TA Securities has adjusted its target price to RM0.57 (previously RM0.51), based on a CY26 PER of 6x and incorporating a 3% ESG premium. Despite the updated target price, the firm maintains a SELL recommendation on the stock, contrasting with the last traded price of RM0.705.
