BAUTO: Automotive Earnings Beat on Stronger Margins, Forecasts Adjusted

A key player in the automotive sector reported stronger-than-expected third-quarter (3QFY26) results, primarily driven by improved margins. The company’s core net profit for the quarter surged 34.9% year-on-year (YoY) to RM31.5mn, supported by a 13.5% YoY increase in revenue. Sales volume for 3QFY26 also saw a healthy 19.6% YoY rise to 4,262 units, with contributions from both Mazda and XPeng domestic operations, particularly the Mazda 3, playing a significant role.

Performance Review

Despite the robust quarterly performance, the cumulative nine-month (9MFY26) core net profit experienced a significant decline of 55.9% YoY to RM58.8mn, with revenue falling 17.4% YoY to RM1.7bn. This weaker year-to-date performance was largely attributed to softer sales volumes recorded in the first half of FY26 and continued losses from associates. Share of losses from associates widened to RM11.3mn in 3QFY26, predominantly stemming from Kia Malaysia Sdn Bhd (KMSB) due to retroactive idle capacity charges arising from lower-than-expected CKD production volumes. Overall sales volume for 9MFY26 dropped 19.9% YoY to 10,016 units. While key CKD models like the CX-5 and CX-30 saw sharp YoY declines, Mazda 3 CBU sales surged, and XPeng G6 deliveries increased. The board declared a third interim dividend of 1.75 sen per share, bringing the 9MFY26 DPS to 3.75 sen.

Future Outlook and Revisions

Management has indicated a cautious outlook, citing ongoing inflationary pressures, geopolitical tensions (Middle East and Ukraine), and slower global growth impacting Malaysia’s economic environment. The increasing influx of Chinese vehicle brands is also expected to intensify competition in the domestic auto market. Consequently, the company has revised its FY26 and FY27 sales target guidance downwards by 5%-7%.

On a more positive note, the company’s backlog orders have improved to a robust 3,800 units, a significant increase from approximately 1,500 units a year ago. Furthermore, the approximately 3% year-to-date depreciation of the Japanese Yen against the Ringgit is seen as supportive for the company, given its increased reliance on imported CBU models, which now constitute about 55% of Malaysian operations, up from 18% a year ago.

Following an upward revision of earnings forecasts by 23.9% for FY26 and 2.7% for FY27, reflecting improved margins despite adjusted lower sales volume assumptions, the investment bank has introduced an FY28 forecast of RM138.7mn. TA Securities has revised its target price to RM0.84/share (previously RM0.57) but maintained a SELL recommendation, preferring to see more sustained earnings visibility before adopting a more positive stance.