AmInvest maintains ‘Overweight’ call on automobile sector


AMINVESTMENT Bank Bhd (AmInvest) maintains an ‘Overweight’ recommendation for the automobile sector noting that the Total Industry Volume (TIV) will gain momentum in 2022, with customers regaining confidence for car purchases as well as supply chain stabilises.

Analyst Muhammad Afif Zulkaplly said TIV forecast this year remains at 555,000 units, implying a 9% year-on-year (YoY) growth, unchanged.

It noted that in February, the industry volume of 43,722 units rebounded 8% sequentially as Honda (M) Sdn Bhd and Proton Holdings Bhd sales recovered from January’s low.

This brings 2MFY22 TIV to 84,303 units (+10% YoY).

“Were main positive on the sector’s prospect, given that since most companies within the sector rely on domestic demand, earnings would be relatively shielded from the impact of geopolitical conflicts,” he said.

The Malaysian Automotive Association’s TIV increased by 8% month on month (MoM) to 43,722 units in February, owing to the rebound of Proton sales following the flood in Shah Alam that disrupted production.

However, most key brands reported lower sales due to a shorter working month in February.

Cumulatively, 2MFY22 TIV expanded 10% to 84,303 units compared to the same period last year which was affected by the Movement Control Order 2.0 and the spike in Covid-19 cases, resulting in a decrease in showroom footfall.

Sales of commercial vehicles also declined 29% month-on-month (MoM) to 4,899 units for the same reason. From year to date, 2MFY22 sales remained at a healthy level of 11,812 units (+33% YoY).

For brands like Proton and Honda, the February sales volume rebounded 109% and 56% MoM to 9,039 units and 6,026 units, respectively from the January low.

However, Proton sales have yet to fully recover to its normalised level of 10,000-12,000 units per month.

Meanwhile, Toyota recorded a decrease of 15% on a monthly basis but increased 27% yearly basis.

Nissan Malaysia’s performance (-20% MoM, +26% YoY), and Mazda (-44% MoM, -33% YoY) reported lower sales due to the Chinese New Year holiday during the month.

The report noted that on a yearly basis most brands reported stronger sales now given that the production is no longer affected by movement restrictions.

Perodua, on the other hand, will possibly launch its third sport utility vehicle after Aruz and Ativa which potentially could make a direct competitor to the Proton X50.

“The possibility is still in a nascent stage, however, we expect once it is confirmed, this expansion of new product offering will enhance Perodua performance,” Afif noted in the report.

Separately, Perodua is set to introduce its first DNGA-B platform-based model, the all-new Alza somewhere from April to May this year.

The research outfit also maintains two top picks which are Bermaz Auto Bhd with fair value (FV) of RM2 and UMW Holdings (FV RM4).

“We also recommend a ‘Buy’ call on MBM Resources Bhd with an FV of RM4.55.”

However, the research is mindful of the potential disruption such as rising materials price and other costs of running a business which led to carmakers facing margin pressure.

“Should the trend persist, carmakers will be forced to pass the additional cost along the supply chain, affecting distributors, parts suppliers, dealers and end-consumers,” the report noted.