BAUTO: Auto Sector Player Navigates Challenging Landscape Amid Mixed Earnings, Analysts See Upside
| Key Information Summary | |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation | |
An automotive sector player reported a quarter marked by mixed financial results, with its net profit for the second quarter of FY26 (2QFY26) falling short of analyst estimates. Despite a significant sequential increase in core profit, the half-year performance was notably below expectations, primarily due to operational headwinds. However, analysts are looking towards a gradual recovery, supported by strategic adjustments and an improving sales environment.
Performance Review
The company’s 2QFY26 core profit saw an impressive 85% quarter-on-quarter surge, reaching MYR16 million. Nevertheless, this represented a substantial 61% year-on-year decline. The cumulative first-half FY26 (1HFY26) earnings of MYR25 million were significantly below both internal and street expectations, plummeting 77% year-on-year. This shortfall was primarily attributed to higher-than-anticipated operating expenses, coupled with lower-than-expected sales volumes and reduced contributions from its associate, Kia Malaysia. The latter proved to be a significant drag, registering a MYR7.8 million loss during the period. The combination of a softer product mix and lower volumes also resulted in a compression of margins, which fell to 6.1% in 1HFY26 from 9.5% in 1HFY25.
Operational Challenges
The automotive market remains intensely competitive, with a notable influx of Chinese marques putting pressure on the non-national segment. Furthermore, the company faced challenges with its Mazda operations, where margins were compressed due to aggressive discounting aimed at clearing older models and stimulating sales.
Future Outlook and Strategic Adjustments
Looking ahead, the company anticipates a quarter-on-quarter recovery in sales volumes. This recovery is expected to be buoyed by several factors, including Mazda’s recent price adjustments, offering discounts of up to MYR35,000, and the expected recognition of 500-1,000 Mazda 3 units in 3QFY26. Xpeng’s sales volumes are also projected to pick up marginally. A key positive development highlighted by analysts is the recent cessation of Kia distributorship, which had been a loss-making segment for several quarters. This move is expected to significantly reduce Kia-related operating expenses going forward.
Analyst’s View
Despite the recent earnings miss and ongoing competitive pressures, analysts view the strategic adjustments and anticipated recovery in sales volumes favorably. The outlook suggests a period of stabilization and potential growth, warranting an updated target price.
