BAUTO: Auto Sector Gears Up for Strong Recovery, Earnings Forecast Upgraded

The automotive sector is poised for a significant rebound, with analysts forecasting a robust recovery in financial performance, driven by strategic cost efficiencies and a strengthening market. A recent research report indicates that the current fiscal year (FY27) is set to be an inflection point after a challenging period.

Financial Performance and Outlook

The third quarter of FY26 marked the beginning of a recovery for the company, with core Profit After Tax and Minority Interest (PATAMI) expected to improve by 10-50% quarter-on-quarter (QoQ), reaching MYR18-25 million. This stronger performance is attributed to a surge in Mazda sales volumes and an appreciating Malaysian Ringgit (MYR). Looking ahead, FY27 is projected as a turnaround year, with sales volumes anticipated to recover to FY25 levels, ranging between 11,000 to 12,000 units. Analysts have revised upwards the FY27-FY28F net profit by 65% and 21% respectively, from a previously low base, reflecting higher sales volumes and enhanced margins.

Key Growth Drivers

Several factors are expected to fuel this growth. The strengthening MYR is a significant tailwind, particularly for sales derived from completely built-up (CBU) models. The MYR appreciated by 10% year-on-year against the Japanese Yen in 2025 and by a further 4% year-to-date in 2026, which is expected to translate into improved CBU margins. Additionally, the cessation of a previous distributorship effective January 1, 2026, is set to yield full-year savings from FY27F onwards, offsetting prior losses estimated at MYR5-8 million per annum. Healthy order backlogs for key models, such as the Mazda 3, which has received consistent monthly bookings of 1,500-2,000 units, also provide strong support for future sales.

Strategic Initiatives and Future Pipeline

The company is strategically expanding its product offerings and local manufacturing capabilities. The facelifted CBU CX-5 is slated for launch in July, with expectations of robust initial deliveries. Furthermore, the company aims to introduce a locally assembled (CKD) version of the CX-5 and one new, yet-to-be-announced model in CY27. There is also a possibility of reintroducing the Mazda 3 2.0L in the local market given the strong reception for the 1.5L variant. In a move towards new energy vehicles, the company is positive on its Xpeng CKD plan, partnering with a local manufacturer to commence production of G6 SUV and X9 MPV models by 1Q 2028, significantly expanding annual capacity at the Melaka facility to 30,000 units.

Analyst View and Recommendation

The investment bank has upgraded its recommendation to BUY from Neutral, setting a new target price of MYR0.95 (previously MYR0.64), indicating an upside of 13%. This valuation is based on an 8x CY27F Price/Earnings (P/E) multiple, up from 7x, reflecting improving earnings visibility and a 6% ESG premium. The stock is currently trading at 7.4x CY27 P/E, which is considered attractive given the robust 65% YoY earnings growth expected for FY27F and the normalization of earnings back to historical levels exceeding MYR100 million. Analysts believe much of the earnings risk has been adequately priced in following the share price correction over the past year, making it an opportune time for investors to accumulate shares ahead of the anticipated FY27F earnings inflection.