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SELL: Core Profit Plunges Amid Intense Competition, Analyst Maintains ‘Sell’ Rating with Lower Target Price
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.51 (-26.1%) |
| Last Traded | RM0.69 |
| Recommendation | SELL |
Performance Review
The automotive sector player reported a challenging start to its first quarter of FY26, with core net profit plummeting 87.4% year-on-year to RM8.6 million, significantly missing market expectations. Revenue also saw a substantial contraction, decreasing 41.9% year-on-year to RM491.3 million. This weak performance was primarily attributed to a sharp decline in sales of key Mazda and Kia models, exacerbated by intensifying competition from more affordably priced Chinese-made vehicles. Additionally, losses from domestic associate companies further weighed on earnings. Total sales volume for the quarter dropped 48.4% year-on-year to 2,638 units, with the CX-5 and CX-30 CKD models experiencing steep declines of 59.7% and 49.7% respectively. On a positive note, newly launched Xpeng models, including the G6 and X9, contributed to overall volume with 128 and 258 units delivered respectively. The board declared a first interim dividend of 0.75 sen per share.
Outlook and Challenges
Management anticipates a challenging market outlook ahead, primarily driven by fierce competition and “irrational pricing” from Chinese-made vehicles. While new Mazda CX-60 and CX-80 PHEV models have received encouraging bookings, the pervasive competitive pressure from new market entrants is expected to continue eroding market share and dampening sales volumes, particularly in the mid to mass-market segments where affordability is a key factor. The proliferation of Chinese car brands, characterized by aggressive pricing, advanced features, and shorter product cycles, is expected to intensify the price war, thus denting profit margins. In light of the weaker IQFY26 results and revised sales volume assumptions, the investment bank has lowered its FY26-FY27 earnings forecasts by 31.1%-33.1%.
Analyst Recommendation
Following the significant earnings revision and a challenging market outlook, TA SECURITIES has maintained its “SELL” recommendation. The target price has been lowered to RM0.51 from the previous RM0.75, based on a CY26 Price-to-Earnings Ratio of 6x and incorporating a 3% ESG premium.
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