| Key Information | Details |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent research report highlights strong financial performance, with core net profit exceeding expectations due to effective cost management and robust contributions from key segments. This positive momentum has led to an upgraded outlook and an increased target price by the investment bank.
Performance Review
For the first quarter of FY26 (1QFY26), core net profit registered a substantial 23.4% year-on-year increase, reaching RM332 million, despite a modest 1.3% decline in revenue. This stronger performance was primarily attributed to lower finance costs and enhanced contributions from associates and UMW. However, on a quarter-on-quarter basis, core profit saw a 29.7% decline, mainly due to weaker performance in the Industrial division, driven by reduced equipment sales.
The Automotive division experienced a 33.7% year-on-year drop in PBIT to RM126 million, largely due to softer contributions from Malaysian and Australasian operations, alongside a narrowing PBIT margin to 1.4%. Conversely, UMW’s PBIT rose 22.0% year-on-year to RM261 million, bolstered by stronger automotive segment profits.
Challenges and Headwinds
Despite overall positive results, the Industrial division faced challenges, with PBIT declining 14.6% year-on-year to RM293 million. This was primarily a result of lower contributions from the Australasia region, reduced equipment sales due to delivery timing shifts, and unfavourable AUD/MYR exchange rates. The China motor market continues to be difficult, plagued by intense price competition, overcapacity, and significant discounting, which erodes margins. Management noted that while anti-involution measures offer some relief, slow industry consolidation limits margin recovery. Furthermore, the industrial division in 1QFY26 was affected by late deliveries of large mining equipment and adverse forex movements.
Future Outlook
Looking ahead, the Malaysian motor outlook remains moderate, supported by healthy order backlogs for Perodua and Toyota, new EV launches, and incentives under Budget 2026. EV sales are expected to surge in 4Q 2025 ahead of the expiry of CBU EV tax exemptions. While demand for industrial equipment and power systems is anticipated to remain strong across all regions, competition in China remains stiff. The successful conversion of the industrial segment’s substantial order backlog, estimated at RM4.8 billion, is considered a potential catalyst for future re-rating.
Investment Perspective
Given these factors, TA SECURITIES has issued a BUY recommendation, setting a target price of RM0.25, indicating a potential upside of 25.0% from the last traded price of RM0.20.
