BAUTO: Earnings Beat Expectations on Strong Sales, Target Price Raised

A leading automotive distributor reported a significant outperformance in its third-quarter fiscal year 2026 (3QFY26) core profit, which surged 94% quarter-on-quarter. The strong results, which brought 9MFY26 earnings to MYR57 million, exceeded both the investment bank’s and Street’s full-year estimates, accounting for 76% and 82% respectively. The company also declared a 3QFY26 dividend per share (DPS) of 1.75 sen, contributing to a 9MFY26 DPS of 3.75 sen.

Performance Drivers

The positive deviation from expectations was primarily driven by several key factors. Higher-than-anticipated sales volumes, particularly from the Mazda 3 model, played a crucial role. This was further bolstered by effective cost management, leading to lower-than-expected operating expenses, and an increase in interest income.

Future Outlook and Catalysts

Looking ahead, the company maintains a positive outlook for its FY27F turnaround plan despite an expected moderation in sales volume during 4QFY26. This short-term dip is attributed to fewer working days due to two major festive seasons and prevailing global geopolitical uncertainties impacting sentiment. However, the future appears promising, supported by a robust Mazda order backlog of 3,500 units, with the Mazda 3 alone accounting for 2,500 units. Steady monthly deliveries of 300-500 Mazda 3 units are expected to continue, with potential for additional allocations from Mazda Motor Corp (MMC) to further boost sales growth.

Further growth catalysts include the localisation of Xpeng models, which is anticipated to enable the company to apply for tax rebates for electric vehicle (EV) models, likely commencing in the second half of FY26. While associate losses from Kia Malaysia are expected to persist in the near term, the total downside from this venture is estimated to be limited to around MYR20 million, with most losses already recognized as of 9MFY26.

Risks and Earnings Revision

Following the strong performance and positive outlook, the investment bank has revised its FY26F earnings forecast upwards by 8.7%, driven by higher sales volume and interest income assumptions. Earnings projections for FY27F-28F remain unchanged. Key downside risks that could impact future performance include softer-than-expected orders and deliveries, intensifying market competition, and potential resurgent supply chain constraints.

The investment bank reiterates its “BUY” recommendation for the stock, with a target price of RM0.25, representing an upside of 25.0% from the last traded price of RM0.20.