Bermaz Auto Bhd (BAuto) continues to receive favourable endorsements from analysts despite a disappointing earnings performance for the first half of the financial year ending April 2025 (1H25). MIDF Amanah Investment Bank (MIDF Research) and RHB Investment Bank Bhd (RHB Research) maintained their BUY calls on the stock, citing attractive valuations and promising prospects.

However, both research houses revised their respective target price (TP) for BAuto downward with MIDF Research setting it at RM2.21 due to weaker-than-expected second quarter (2Q) results. RHB Research, meanwhile, set the TP at RM2.65 but underscored the stock's value.

For 2Q25, BAuto's revenue dropped 36% year-on-year (YoY) to RM688.8 million, largely due to a 38.9% dip in domestic Mazda sales and a sharp 55.1% decline in Kia sales. The company's quarterly profit was further eroded by a 3.1 percentage point contraction in profit margins, leading to a 52.9% YoY drop in core profit after tax and minority interests (PATAMI).

BAuto's core PATAMI of RM41.9 million represented only 32% of MIDF Research's full-year projection and the research house attributed the shortfall to rising competition from Chinese automakers and declining margins, especially within its Philippine operations.

Nevertheless, BAuto declared a second interim dividend of three sen per share alongside a special dividend of seven sen, bringing the total payout for the year to 13.5 sen, or 143% of earnings.

Meanwhile, both research houses highlighted the growing challenges in the domestic automotive market as competition from Chinese-made vehicles intensifies. Price discounts and advanced connectivity features offered by Chinese automakers are shifting consumer preferences, which could further destabilise non-national carmakers like BAuto.

Despite that, both MIDF Research and RHB Research remain optimistic about BAuto's ability to navigate these headwinds as the company's volume-heavy locally assembled models, including the Mazda CX-5 and CX-30, are expected to underpin sales. Additionally, the gradual establishment of its electric vehicle brands, Xpeng and Deepal, in the local market is seen as a long-term growth driver even though significant contributions from these brands are not expected in the near term.