DESPITE the expiry of the loan moratorium on end-September – coupled with implementation of the conditional movement control order (CMCO) since mid-October – the October total industry volume (TIV) for the automotive industry came in just short July’s high at 56,670 units (+5.2% year-on-year (yoy) and +0.4% month-on-month; July’s high: 57,552).
Judging by solid July-September TIV, MIDF Research expects the sector’s upcoming 3Q CY2020 earnings season to stage a solid recovery.
“With the 3Q 2020 TIV at 167,131 units, a+14% yoy growth and a whopping +147% quarter-on-quarter (qoq) increase – this is in fact the strongest quarter seen in at least the past three years,” wrote analyst Hafriz Hezry in a sector update.
With the exception of Honda and Nissan which registered contraction of -16% and -10% yoy, all the other key marques registered double digit TIV growth of between 14%-47% yoy during the period.
“Nevertheless, both Honda and Nissan launched the new City and Almera in October which should drive a recovery in the remaining three months of the year,” projected Hafriz.
“The City is understood to have garnered bookings of circa 9,000 units versus a monthly target of 3,000 units.”
Meanwhile, Proton’s X50 has garnered over 27,400 bookings as opposed to the management’s initial target of 4,000 units by end-2020.
All-in, MIDF Research maintained its “positive” outlook on the automotive sector, premised on a strong TIV recovery driven by the tax holiday incentive, robust consumer liquidity, a low interest rate environment and a shift to private car usage from mass transport on concerns over social distancing.
Its top two sector picks are Bermaz Auto Bhd (“Buy”; target price: RM1.75) and UMW Holdings Bhd (“Buy”; target price: RM3.10).
The key catalysts for Bermaz Auto include (i) demand recovery driven by the tax-holiday incentives; (ii) potential introduction of a third completely knocked down (CKD) model; (3) potential brand expansion riding on Bermaz Auto’s solid balance sheet and Inokom’s capacity expansion; and (iv) potential NAP incentives to drive CBU exports.
For UMW, the key catalysts are (i) a turnaround in group earnings from 3Q 2020 driven mainly by the automotive division; (ii) potential launches of new mass market CKD models in 1H 2021; (iii) launches of four new improvement models in 4Q 2020; and (iv) commencement of Trent 7000 fan case assembly in 4Q 2020. – Nov 25, 2020
