Australia | 1:03 PM
While ARB Corp's near-term outlook disappointed with interim results, analysts continue to eye structural industry tailwinds and the US expansion opportunity.
ARB Corp’s interim result featured stable sales with lower profit
H2 guidance disappoints, industry supply issues weigh near term
Margins pressured by currency and new vehicle supply
UBS excited by US expansion opportunity
By Mark Woodruff
Despite ARB Corp’s ((ARB)) interim results being pre-released last month, brokers materially lowered valuations for the vertically integrated designer, manufacturer and distributor of 4WD and utility vehicle accessories.
The negative response follows management’s effective downgrade to second-half forecasts relative to prior market expectations.
Compared to the prior year, profit before tax (PBT) fell -18.8% to $57.1m and profit margins contracted -340bps to 16.0%, well adrift of management's long-term target of around 20%.
Revenue of $358.1m was down -1% on the prior year, with Australian Aftermarket sales falling -1.7%, export sales growing by 8.8%, and OEM sales dropping by -38.2%.
An interim dividend of 34 cents was declared, ahead of the consensus estimate of 28.9 cents.
While the company remains well-positioned and -managed, Canaccord Genuity argued consensus growth estimates for the outer years remained unrealistic, hence those downgrades should not surprise.
Sales for the half were broadly flat year-on-year, yet net profit fell by -17.2% as adverse exchange rates, lower factory overhead recoveries (fixed manufacturing costs being spread over fewer units of production), and constrained new vehicle supplies squeezed sales margins.
Morgans remains positive on the medium-term outlook for the group’s domestic aftermarket business, which should continue to benefit from structural industry tailwinds, network expansion and new revenue channels such as online. The broker is also encouraged by progress made in the US.
Similarly, UBS is excited by ARB's expansion opportunity in the US and highlights a healthy order book, especially for Export through the US business.
In balancing the multiple headwinds encountered in the first half, this broker notes several have now normalised, including the Australian dollar/Thai baht exchange rate and the large 1H25 overhead recovery comparison, while others persist.
These include OEM contract volatility, fitter labour constraints affecting the Australian aftermarket, and reduced OEM new vehicle supply for key products.
The analysts contemplate whether softer Australian new vehicle sales reflect constrained OEM supply or weaker demand tied to wealth effects with the answer likely a combination of both.
ARB’s business
The company has a growing international footprint and a multi-channel model spanning Australian aftermarket retail/wholesale, export and OEM programs.
Segments include Aftermarket (Retail/Wholesale), incorporating sales through ARB stores, distributors and retail channels. Elsewhere, OEM involves the supply of accessories fitted to new vehicles by OEMs, while Export accounts for International sales outside Australia, often through distributors.
Over the six months to December 2025, the percentage of total group sales for Aftermarket, Export and Original Equipment was 56.9%, 38%, and 5.1%, respectively.
By geography, reporting segments for ARB are Australasia, the US, Thailand, and Middle East/UK.
Products are distributed through ARB’s 79-store Australian network (of which 32 are company owned) to retail customers, ARB stockists, new vehicle dealers, and various fleet operators.
Supporting its omni-channel strategy, management last month launched a direct-to-consumer e-commerce site www.arb.com.au, designed to provide bespoke product solutions across the company’s accessory range.
Since FY25, management has continued investing in product development, store network upgrades, and export scalability, particularly in the US.
The product range has also been expanded via targeted acquisitions (notably MITS Alloy) and strategic equity participation in US retail via the 48-store Off Road Warehouse (ORW), incorporating the 4 Wheel Parts (4WP) network.
The ORW/4WP acquisition was profitable in the first half of FY26, with Ord Minnett anticipating further upside.
A material proportion of ARB’s products is manufactured in Thailand.
Costs denominated in local currency increased as the Thai baht strengthened against the Australian dollar in December 2024 and remained at historically high levels during 2025, weighing on margins.
Management expects second-half margins to normalise, supported by hedging and more stable overhead recoveries, with exports, particularly to the US, a key growth lever.
During the half, sales to Export markets rose by 8.8%, reflecting 26.1% growth in the US offset by flat sales to the rest of the world, partly due to a delay in Toyota HiLux deliveries into Europe and New Zealand, explained management.
The company also noted the US operation is being supported by a strategic relationship with Toyota US, an accelerated new product program, and a strong performance by the US e-commerce platform launched in 2024.
February 2026 new car sales data
New vehicle sales for February fell -4.5%, which Ord Minnett attributes to ongoing supply disruptions among key manufacturers, providing a near-term headwind for ARB’s Australian aftermarket operations.
4WD models (targeted by ARB) registered a more modest -2.6% decline, with Hilux up 0.2% and Ranger up 7.1%, but the broker notes inconsistent deliveries (notably Toyota Prado and Land Cruiser) remain a drag.
Citi notes increasing competition from new lower-priced models where ARB typically under-indexes due to limited engineering resources.
New Chinese entrants included MG MGU9, LDV Terron 9 and Foton Tunland, collectively accounting for around 3% of February category volumes.
Federal Chamber of Automotive Industries Vehicle Facts data continue to reflect strong overall vehicle sales but weakness in key 4WD models.
Against a backdrop of potential model price increases related to new vehicle efficiency standard (NVES) taxes and some demand impacts from the removal of the instant asset tax write-off, Canaccord does not expect the domestic environment to materially improve over the next 12 months.
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