WITH the current implementation of strict full movement control order (FMCO) Phase 1 (since Jun 2021), the automotive industry has been severely affected as the whole industry remains in a halt.
The proof of the pudding is the significant drop of the total industry volume (TIV) for June 2021 by 95.7% year-on-year (yoy) and 95.9% month-on-month (mom) to only 1,900 units.
This has prompted Hong Leong Investment Bank (HLIB) Research to lower its TIV forecast for 2021 to 480,000 units (from 585,400 previously) or a -9.3% yoy drop given the prolonged Phase 1 period with continued high new COVID-19 cases (above 15,000 cases) which are above the 4,000 threshold to enter into Phase 2 and 2,000 threshold to enter into Phase 3.
“The whole automotive industry is essentially in a pause mode at the current juncture,” opined analyst Daniel Wong in an automotive sector update. “The industry is appealing to the Government to ease the lockdown measures by allowing partial operational commencement.”
On the brighter side, HLIB Research expects a strong rebound in TIV once the industry is allowed to fully operate given the extended sales and services tax (SST) exemption (until Dec 31).
This, according to Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad, will probably be in Phase 3 which is targeted for September-October.
“The industry has been enjoying brisk orders as consumers are taking advantage of the reduced car prices 2-7% during SST exemption period,” observed the research house.
“The industry has requested the Government to further extend the SST exemption measure by another six months to June 30 next year, arguing the industry is unlikely to fulfil the huge order backlogs and new orders by end-2021 (due to the extended Phase 1) and the greater benefits of the whole industry value-chain for the eventual economic recovery.”
All-in-all, HLIB Research has downgraded its outlook for the sector to “neutral” with its three top picks being DRB-Hicom Bhd (“buy”; target price: RM2.45); MBM Resources Bhd (“buy”; target price: RM4.80); and 3) Sime Darby Bhd (“buy”; target price: RM2.68). – July 26, 2021
