A sluggish January but 1,001 reasons that auto sales will rebound

CAR sales figures may have declined in the first month of 2021 but this does not mean that a bleak future is in store for the automotive sector.

According to the Malaysian Automotive Association (MAA), total industry volume (TIV) for January 2021 stood at 32,829 units (-52% month-on-month [mom]; -24% year-on-year [yoy]).

Kenanga Research opined that new volume-driven launches (ie Perodua ATIVA, Proton X50, Honda City and Nissan Almera) could help spur sales along with the overflowing back-logged booking, further extension of the sales and services tax (SST) exemption to June 30, seasonal promotions and more new launches expected in the 2H 2021.

“Overall, 2021 could potentially be a better year along with better incentives programme under NAP 2020, positive impact from Bank Negara Malaysia’s (BNM) overnight policy rate (OPR) cut and pre-emptive measures that soften the COVID-19 impact,” projected analyst Wan Mustaqim Wan Ab Aziz in an automotive sector update.

Commenting on January’s sales decline, Kenanga Research attributed the poor sales to (i) higher December 2020 preemptive buying base on exciting year-end promotional campaign; (ii) sluggish showroom activity from the ongoing movement control order (MCO 2.0), and (iii) shortage of components & parts for some players especially during the temporary closure of automotive factories during the first week of MCO 2.0.

“We expect slower February sales on Chinese New Year festivities, shorter working month and held-back purchases with the expected new model launches in March, especially the highly anticipated all-new Perodua ATIVA (booking opened, delivery March 2021) (to spur sales growth,” added the research house.

All-in-all, Kenanga Research maintained its “overweight” outlook on the automotive sector with a 2021 TIV target of 585,000 units (+11% yoy).

Although it maintained its “neutral” stance on the sector, CGS-CIMB Research is projecting a 10% TIV growth to 580,000 in 2021F,

“We think the sector remains on track for an earnings recovery in 2021F, and project 60% sector net profit growth (vs -39% in 2020F),” commented analyst Mohd Shanaz Noor Azam.

“Although the implementation of MCO 2.0 could lead to lower TIV in 1Q 2021F due to lower showroom footfall, we still expect TIV to pick up from 2Q 2021F as we are cautiously optimistic of a stronger recovery in economy activities once COVID-19 vaccines become more widely available.”

The research house’s two preferred picks are DRB-Hicom Bhd and UMW Holdings Bhd. – Feb 23, 2021

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