| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading automotive distributor recently announced a significant downturn in its second quarter (2QFY26) headline net profit, which plunged by 57.4% year-on-year to RM17.2 million. The core net profit also saw a substantial reduction of 38.0% year-on-year, landing at RM25.0 million. While the cumulative six-month results missed analyst forecasts, they were in line with consensus expectations. In response to a challenging operating environment, analysts have trimmed their earnings forecasts for FY26-28F by an average of 7.7%, leading to a reduction in the target price and maintaining a Neutral rating on the company.
Performance Review
The sharp decline in profitability was primarily attributed to weaker sales performance within its domestic Mazda operations and considerable losses from an associate company, Kia Malaysia SB. The latter is noted as a one-off item following the cessation of Kia operations. Revenue for 2QFY26 decreased by 14.0% year-on-year to RM556.5 million, a direct result of an 18.3% drop in total unit sales, amounting to 3,116 vehicles. This sales slump was evident across both Malaysian and Philippine markets, with Malaysian vehicle sales down 13.5% year-on-year and Philippine sales falling 24.1% year-on-year, exacerbated by factors like weaker consumer spending and natural disasters. Core net profit was further impacted by declining revenue, weaker margins, ESOS-related expenses, and lower contributions from domestic associates such as Mazda Malaysia and Inokom, due to lower-than-anticipated CKD production.
Challenges and Outlook
The Malaysian auto sector is anticipated to face a mixed environment heading into 2026. While the overall Total Industry Volume (TIV) forecast remains robust, supported by mass-market demand and new model launches, the non-national passenger vehicle segment is expected to encounter significant headwinds. Key challenges include the expiry of tax incentives for EV Completely Knocked Down (CKD) units, the eventual phasing out of fuel subsidies, and new Open Market Value (OMV) duties. Furthermore, intensified market rivalry from competitively priced Chinese vehicles is expected to squeeze profitability. In an effort to counter these challenges and address product lifecycle endings, the company has introduced new CBU models, including the CX-60, CX-80 PHEV, and a 1.5 Mazda3 High Plus variant.
Analyst’s Recommendation
Given the prevailing challenging operating environment and the reduced earnings outlook, the investment bank has revised its target price downwards from RM0.67 to RM0.62, based on 7x CY26F EPS, while reiterating its Neutral rating on the company. The Group also declared a second interim dividend of 1.25 sen per share, bringing the year-to-date dividend to 2.00 sen, representing a payout ratio of 70.5%.
