| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The automotive group reported a challenging first quarter for FY26 (financial year ending April), with results falling significantly short of market expectations. Core Profit After Tax and Minority Interest (PATAMI) registered RM8.6 million, representing only 5% to 6% of the full-year forecast from both the investment bank and consensus estimates. While revenue broadly met projections, operating margins were notably weaker than anticipated. The Group also declared a first interim dividend of 0.75 sen, equating to a 101% dividend payout ratio.
Performance Review
Domestic operations were severely impacted during 1QFY26, contributing to a substantial 41.9% year-on-year contraction in the Group’s revenue. Sales for Mazda plummeted 58.6% year-on-year, and Kia sales declined 28.8% year-on-year, primarily due to an ageing model lineup and intense market competition. Overseas operations also faced pressure, albeit less severely, with Mazda Philippines recording a 17.4% year-on-year drop in sales.
The Group also reported losses from all domestic associates, a stark contrast to the profits seen in 1QFY25, attributed to reduced sales volumes. Consequently, core PATAMI plunged 87.5% year-on-year, with margins narrowing by 6.4 percentage points due to decreased operating efficiency. Against the preceding quarter (4QFY25), Group revenue fell 7.1% quarter-on-quarter, driven by domestic sales declines. Associates’ contributions further deteriorated into negative territory, leading to a 60.4% quarter-on-quarter decline in core PATAMI.
Future Outlook and Recommendation
Despite the challenging start, stronger quarters are anticipated, primarily driven by new model introductions. Deliveries for the Mazda CX-60 (with 500 bookings) are expected to commence in the second quarter of FY26, while the Mazda 3 1.5L variant (with 1,700 bookings) will contribute to sales from the third quarter of FY26 onwards. The Philippines operations showed sequential improvement, with a 4.6% quarter-on-quarter revenue increase, supported by a 2.9% increase in Mazda sales. Additionally, the XPeng electric vehicle brand, introduced in 2QFY25, continued to outperform expectations, with quarterly sales rising 18.0% quarter-on-quarter.
The investment bank, MBSB RESEARCH, has maintained its “NEUTRAL” recommendation on the stock. Following an earnings revision and a rollover of its base year, the target price has been lowered to RM0.59 from RM0.75. This valuation is based on a projected FY27F EPS pegged to a Price-to-Earnings Ratio (PER) of 6.0x, which is 1.0 standard deviation below its 5-year mean. The bank also revised its sales volume assumptions and lowered margin expectations, leading to a 33% to 35% reduction in FY26E/FY27F earnings estimates.
