AMINVESTMENT Bank is optimistic about the automotive sector, and expects total industry volume (TIV) to increase in the second half of 2020 (2H20), supported by the implementation of the Penjana tax holiday.
“We maintain our overweight recommendation on the auto sector with a TIV projection of 565,000 units for 2020,” said AmInvest analyst Jeremie Yap.
Yap noted that the Penjana tax holiday, which provides a 100% sales tax exemption for locally assembled vehicles, and a 50% sales tax exemption on fully imported models from June 15 to Dec 31, should see improved performances across the board for all major automakers.
“Going into 2H20, we are expecting a strong recovery over the next six months as the number of domestic Covid-19 new cases is easing and most businesses have resumed operations with the considerations of the new norm,” said Yap.
“The government has also relaxed the movement control order (MCO), where all dealerships, showrooms and Road Transport Department outlets are now able to take in booking orders and registrations for new vehicles.”
Yap also expects the debut of two “attractively-priced national SUVs” in 2H20, namely the Proton X50 and the Perodua D55L, to allow Proton and Perodua to extend their lead for market share.
At the same time, the cumulative reduction of the overnight policy rate (OPR) by 100bps over the course of 1H20 should see lower financing rates, which is supportive of the purchase of vehicles, but Yap warns that the weaker ringgit poses a key concern to the profit margins of companies.
“The further weakening of the ringgit will be negative for the sector and auto players in our coverage should there be further cuts to the interest rate,” said Yap, naming Tan Chong Motor Holdings Bhd, UMW Holdings Bhd and Pecca Group Bhd as the companies that will be more heavily impacted.
Yap also maintains a top pick of MBM Resources Bhd, with a buy call and a fair value of RM4.62, believing that the stock is currently undervalued and will continue a strong showing as a direct proxy to Perodua’s dominance in the local automotive sector. – July 6, 2020
