WHILE car sales are poised to remain stable in 2H 2022 on the back of a high number of order backlogs, opinion on the sustainability factor or longer term outlook of Malaysia’s automotive industry seems to be mixed.
Yesterday (July 21), the Malaysian Automotive Association (MAA) revealed that total industry volume (TIV) for June 2022 came in at 63,366 units (+28% month-on-month [mom]; >100% year-on-year [yoy]).
The mom sales growth was fuelled by the sale and service tax (SST) exemption incentive which ended on June 30 with massive booking backlogs estimated at more than 400,000 units with a sliver of production recovery echoed by the gradual re-opening of China supply lines.
Meanwhile, sales on a yoy basis surged more than 100% from low base due to the lockdown last year. Sales for July 2022 are expected to be maintained around June 2022’s level on continued delivery of back-logged booking.
On the positive side, Kenanga Research expects sustainable car sales post-SST exemption period with minimal order cancellations and with demand outweighing the supply given the massive order backlogs (up to nine months) coupled with the Government’s commitment to absorb the SST for orders before June 30 (with the Road Transport Department’s [JPJ] registration before March 31, 2023).
“The sector is currently trading at trailing 12 times PER (price-to-earnings ratio) which is at a 25% discount to pre-pandemic mean of 16 times PER,” opined analyst Wan Mustaqim Wan Ab Aziz in an automotive sector update.
“We expect earnings in subsequent quarters to gradually normalise to pre-pandemic levels on the back of sector earnings growth of 22% in FY2023 which should justify sector PER to gradually reverting closer to the mean.”
Reiterating its “overweight” stance on the sector, Kenanga Research expects new launches of battery electric vehicles (BEVs) to be boosted by sales tax exemption and other EV facilities incentives up to Dec 31, 2025 to support development of the local EV industry.
“Our 2022 TIV target is at 600,000 units (+18%) compared to MAA’s 630,000 units (+24%). We have reservation on MAA’s target which we believe to be premature amid persistent shortage of chips and components but a positive sentiment is a welcome relief,” justified the research house.
However, UOB Kay Hian Research retains its “underweight” outlook on Malaysia’s automotive sector, adamant that valuation could de-rate due to a cyclical car demand downturn from a high base.
“Additionally, the on-going weakening of the ringgit against the US dollar and the prolonged chip shortage could pose downside risks to the sector’s earnings,” observed the research house. “Based on the companies under our coverage, we are forecasting a 6.8% and 4.6% fall in sector earnings and revenue in 2023 respectively.”
Most of the key marques reported sequentially stronger sales volume, bringing the TIV for 1H 2022 to 331,386 units (+33% year-to-date) or 54.8% of UOB Kay Hian’s 2022 TIV forecast of 605,000 units.
“We forecast 2023 TIV to register 550,000 units or -9% yoy (2022: 605,000 units) as we expect a significant slowdown in consumption due to (i) the end of SST exemption; and (ii) potential re-introduction of goods and services tax (GST) that could raise car prices further,” projected the research house.
“Additionally, the rising inflation will corrode end consumers’ purchasing power.” – July 22, 2022
