BAUTO: Automotive Group Achieves Robust Q3 Profit Growth, Analyst Raises Target Price Amidst Mixed Sector Outlook

A leading automotive group reported a significant 35.2% year-on-year increase in net profit for the third quarter of FY26, reaching RM32.6 million. This strong performance pushed the group’s core net profit for the first nine months of FY26 to RM65.4 million. While the results aligned with the investment bank’s expectations, they fell short of broader market forecasts. The company also declared a third interim dividend of 1.75 sen per share, maintaining the previous year’s quarterly payout.

Performance Review

The robust third-quarter performance was primarily driven by a substantial 19.6% year-on-year rise in total unit sales, amounting to 4,262 vehicles. This growth was largely fueled by strong sales from its Malaysian Mazda and XPeng operations, with domestic vehicle sales increasing 12.1% year-on-year. Notably, the demand for the Mazda 3 model, launched in October 2025, contributed significantly. The group also benefited from inventory buybacks initiated by a key distributor following the discontinuation of its Kia operations during the quarter. Furthermore, the group saw an improvement in its operating margin, which rose from 5.8% to 10.3% in the quarter, indicating enhanced cost efficiencies.

Challenges Faced

Despite the overall positive trend, the group faced some headwinds. Revenue from its Philippines operations saw a marginal 6.0% year-on-year decline, despite an increase in vehicle sales volume, attributed to a less favorable product mix. Additionally, losses from domestic associate Kia Malaysia SB continued to impact performance, largely due to idle capacity costs stemming from lower-than-anticipated CKD production volumes.

Future Outlook

Looking ahead, the outlook for Malaysia’s auto sector in 2026 is anticipated to remain mixed. While the Total Industry Volume (TIV) is expected to receive support from resilient mass-market demand, extended fuel subsidies, consumer downtrading, and new model introductions, the non-national passenger vehicle segment faces considerable challenges. These include the expiry of tax incentives for EV CBUs, the eventual phasing out of fuel subsidies, persistent inflationary pressures, and ongoing geopolitical conflicts. Weaker global growth is also expected to impact consumer sentiment. The growing presence of competitively priced Chinese vehicles is forecast to intensify market rivalry and squeeze profitability.

In light of these factors, the investment bank (Public Investment Bank) has maintained its “Neutral” rating on the stock but has raised its target price to RM0.82, up from RM0.62 previously, based on a roll-over valuation to 7x CY27F EPS.