‘Worst is over’ for auto sector

The sector can register a TIV of 60,000 units a month post-lockdown


MALAYSIA’S automotive sector is expected to gradually recover with the reopening of the economy led by national car brands.

AmInvestment Bank Bhd (AmInvest) analyst Jeremie Yap noted that the sector could register a total industry volume (TIV) of 50,000 to 60,000 units a month post-lockdown, with the bulk of market share to be tilted to Malaysian marques.

He expects TIV in the fourth quarter would be stronger, driven by additional promotional discounts or cash rebates for year-end clearance and the festive season.

He also said consumers would want to lock in their purchases to enjoy the car prices reduction ranging between 1% and 6% depending on car models from the sales tax exemption that will end by Dec 31, 2021.

“We believe the worst is over and there will be a gradual easing of restrictions globally, alongside the global vaccination programmes, which will improve businesses’ cashflows and reduce the disruptions to supply chains,” Yap stated in a report on Monday.

The analyst said domestic vehicle production would normalise with the gradual easing in the shortage of chips seen recently, especially for Perusahaan Otomobil Kedua Sdn Bhd’s (Perodua) Myvi model.

He further said that national automakers Proton Holdings Bhd and Perodua’s vehicles would lead the market due to their attractive prices with superior value propositions compared to the mid-tier non-national brands such as Toyota, Nissan and Honda.

“The Perodua Ativa, Aruz, Proton X70 and X50 SUVs are not only more attractively priced compared to their peers, these models also provide more interior technological features for a superior driving experience. The X50 is the first car in the domestic market with Level 2 automation,” he added.

Yap anticipated consumer spending on big-ticket items such as passenger vehicles to remain robust in the second half of the year with sentiment gradually improving amid accelerated vaccination drive and gradual easing of the Movement Control Order by phases.

He expects low financing rates to continue to be supportive of vehicle purchase and a stronger ringgit against the US dollar would be positive for auto players’ profit margins.

AmInvestment has maintained an ‘Overweight’ rating on the auto sector with an unchanged TIV projection of 575,000 units, a 9% year-on-year growth for 2021.

The investment bank has kept a ‘Buy’ call on DRB-Hicom Bhd with a fair value (FV) of RM2.38 and MBM Resources Bhd (FV: RM4.51) as these companies are the direct proxies to Proton and Perodua’s dominance in the auto sector.

MBM Resources is viewed as being currently undervalued, trading at 6.5 times the financial

year 2021 forward earnings per share, compared to the sector average of 14.7 times.

AmInvestment has a ‘Buy’ recommendation on Bermaz Auto Bhd (FV: RM1.80), Sime Darby Bhd (FV: RM2.87) and UMW Holdings Bhd (FV: RM4.07).

In contrast, it holds an ‘Underweight’ call on Tan Chong Motor Holdings Bhd (FV: 65 sen) due to fundamental challenges after losing its completely built-up and completely knocked-down rights in Vietnam; and Pecca Group Bhd (FV: RM1.99) due to excessive valuations.

Yap stated potential risks that could prompt a downgrade of the sector to ‘Neutral/Underweight’ are prolonged lockdown; heightened global trade tensions, which could lead to a steep weakening of the ringgit; and tightening financing.

DRB-Hicom and Bermaz Auto shares closed unchanged on Monday at RM1.64 and RM1.52, respectively.

MBM shares were up 1.27% to RM3.18, Sime Darby (-0.92%, RM2.16), UMW (-0.67%, RM2.97), Tan Chong Motor (-2.5%, RM1.17) and Pecca (-1.96%, RM4.01).