THE automotive sector is set for a rebound with the entire automotive value chain widely expected to resume operations following economic relaxation measures. This includes the automotive and component plants as well as auto distribution and retailing.
With the auto manufacturing workforce having broadly met vaccination rate condition, a gradual production ramp-up can be expected from now till end-August, according to MIDF Research.
“From our chat with selective listed players yesterday (Aug 15), their workforce (inclusive of plant workforce) are already more than 90% fully vaccinated which is well higher than the respective state-level vaccination rates thanks to PIKAS (MITI’s public-private vaccination program for the manufacturing sector),” analyst Hafriz Hezry pointed out in a sector update.
“However, we understand part of the workforce may still need to complete the 14-day post-second dose requirement, suggesting that production may see gradual ramp-up from now till end-August.”
Yesterday, the Government announced easing of economic restrictions in 11 business types for consumers who have been fully vaccinated (proof via digital vaccination certificate).
Phase One of the exercise entails car wash; electric & electronics; household & kitchen appliances; furniture; sports equipment; car accessories; car dealerships; morning & farmer’s markets; clothing & accessories; jewellery; and hair salons.
MIDF Research further noted that the longer-than-expected lockdown presents a slight downside risk to its 2021F total industry volume (TIV) of 550,000 units (+4% year-on-year) which modelled in one-and-a-half to two months of closure (vs the actual 2.5 months).
“Nevertheless, the resumption of sector operations now improves visibility and removes an overhanging concern on the sector’s recovery prospect,” justified the research house.
“Furthermore, the impact of the lockdown on our forecasts should be limited to 2021 from production loss whereas demand remains intact at this juncture, backed by strong outstanding orders.”
Moreover, MIDF Research expects the simultaneous re-opening of auto retailing should accommodate further build-up of outstanding bookings, underpinned by the tax holiday till year-end, cash transfers under the fiscal stimulus programs and a low interest rate environment.
These factors, coupled with potential improvement in the macro environment post-reopening, underscores the research house’s “positive” view on autos as a recovery play. Its top sector picks are Bermaz Auto Bhd (“buy”; target price: RM2.20); MBM Resources Bhd (“buy”; target price: RM4.20) and UMW Holdings Bhd (“buy”; target price: RM4.30).
