Public-listed automotive distributors put up a mixed showing in earnings for the 3Q19

by NUR HAZIQAH A MALEK  / pic by ARIF KARTONO

ANALYSTS are staying neutral on the automotive sector, as a lack of catalysts amid geopolitical uncertainties and slowing economic growth cloud the industry outlook.

Public-listed automotive distributors put up a mixed showing in earnings for the third quarter of 2019 (3Q19), with MBM Resources Bhd posting a 46% year-on-year (YoY) jump in net profit, while DRB-Hicom Bhd recorded a net profit of RM40.08 million for the three months ended Sept 30, 2019, against a net loss last year.

UMW Holdings Bhd’s net profit fell 13.9% YoY in 3Q19, while Bermaz Auto Bhd’s earnings rose 0.5% YoY in the 1Q ended July 31, 2019.

Amid a backdrop of global and domestic economic woes coupled with global trade tensions, a possible power-up for the automotive sector lies in the National Automotive Policy (NAP) 2019, which will be implemented in three phases until 2030 and will include efforts to turn Malaysia into a hybrid and energy-efficient vehicle manufacturer. However, it is not known when the NAP 2019 will be launched.

Affin Hwang Investment Bank Bhd (Affin Hwang Capital) has picked MBM Resources as its top choice, while maintaining a ‘Neutral’ rating on the automotive sector.

“Key risks to our sector call include higher or lower than expected car sales volumes, tighter or looser bank lending policies, intensifying price competition, fluctuation of the ringgit versus the greenback and the yen, delays on new car pricing approvals, and a worse than expected economic slowdown that affects market sentiment,” it wrote in a recent note.

The research house said Proton Holdings Bhd, which is majority-owned by DRB-Hicom, was the champion in October 2019, as its sales volume rose 87% YoY to 9,500 units.

Proton also posted a year-to-date (YTD) cumulative sales volume of 79,000 units.

“Judging from strong bookings for the face-lifted Saga and popular demand for the SUV X70, Proton is poised to achieve its 2019 sales target of 100,000 units,” the research firm said.

Sales at Perusahaan Otomobil Kedua Sdn Bhd (Perodua), a subsidiary of MBM Resources, were also commendable during the month at 22,800 units, which was a 17% rise YoY, driven by strong demand for key Perodua models.

Stronger demand for local cars led to a continued slump in Japanese car sales volumes in October 2019, Affin Hwang Capital added.

It said Toyota recorded a 6% decrease YoY, while Honda sales were lower by 18% YoY and Nissan fell by 34% YoY.

Mazda’s sales slipped 22% YoY, with its current backlog at 1,500 units.

The premium segment also put up a lacklustre performance in October, as BMW/MINI and Mercedes-Benz sales volumes YTD fell by 17% YoY and 25% YoY respectively.

“On a monthly basis, sales volumes of most key carmakers (excluding BMW and MINI) picked up as September 2019 was a shorter working month and consumers were withholding their purchases in anticipation of the Budget 2020 announcement,” Affin Hwang Capital said.

Shares of Bermaz, the official distributor of Mazda in Malaysia, were down 1.6% YTD. In contrast, MBM Resources was up 69.6% since the start of the year.

UMW Holdings has lost 19.7% YTD, while DRB-Hicom has gained 36.5% over the same period.

AmInvestment Bank Bhd has DRB-Hicom and MBM Resources as its top picks, as the two firms are able to ride on strong sales of Proton and Perodua vehicles, which command the bulk of the market share in terms of total industry value (TIV) sales.

In a recent report, the research firm said Malaysia’s TIV rose 24% month-on-month (MoM) and 14% YoY in October 2019 to 53,900 units.

“We believe that the higher sales volume in October this year was due to a longer working month and year-end promotional campaigns.

“Cumulatively, the YTD TIV was down 1% to 496,900 units from 502,100 units in the same period last year,” it said.

All car manufacturers, namely Perodua, Proton, Honda, Toyota and Mazda recorded higher MoM sales, although Honda and Mazda registered lower YoY sales growth with decreases of 12% and 39% respectively.