DESPITE the fact that many Malaysians are faced with soaring inflation that has eaten into their spending power, there is clear sign that new car sales in the country is not slowing down any time soon.
One possibility of the race to buy cars now is the concern of a price hike as automakers grapple with escalating raw materials and a weakening ringgit that have eaten into their operation cost, hence the likelihood of them eventually passing down their excess cost to consumers.
Even as some automakers/distributors having already introduced SST (sales and service tax)-inclusive pricing for more recent bookings to manage customers’ expectations, AmBank Research observed that this has not deterred potential car buyers.
“Even after the release of the updated prices, auto firms are still seeing a healthy daily order rate which signifies that robust demand for new passenger vehicles is likely to be sustainable beyond the tax-free window,” projected analyst Muhammad Afif Zulkaplly in an automotive sector update.
“Given the long booking queue – ranging between two to three months on average – prospective buyers that place their bookings in the past one to two months will most likely only get their cars after the tax-free period has ended.”
Although a spike in booking cancellations is expected in July, AmBank Research expects industry sales volume to quickly rebound as demand outweighs supply.
In view of the bullish sentiment, the research house has revised upward its 2022 total industry volume (TIV) forecast to 590,000 units from 555,000 units previously (vs the Malaysian Automotive Association’s 600,000 units) with the view that strong demand for new passenger vehicles is sustainable beyond the tax-free period.
“The revised sales volume forecast implies a 16% year-on-year (yoy) growth,” noted AmBank Research. “We expect Perodua to be the biggest winner, gaining a 4.1-percentage point market share in 2022 at the expense of Proton (-2.5 percentage points) given the resiliency of its supply chain navigating through disruptions.”
The research house further projected sector revenue to grow by 5% and earnings by 10% in 2022, reverting to the pre-pandemic level following a wider economic recovery.
“2Q CY2022 sector earnings are expected to be quarter-on-quarter (qoq) and yoy stronger as automakers accelerate deliveries heading towards the end of the SST exemption period,” reckoned AmBank Research.
All-in-all, the research house reiterated its “overweight” call on the sector with industry sales expected to rebound in 2022 as supply chain normalises and consumer confidence gradually recovers, underpinned by a pick-up in broad-based economic activities.
“A further extension of the SST exemption would be the key upside risk to our TIV and earnings forecasts,” added AmBank Research.
Its top picks are Bermaz Auto Bhd (fair value: RM2.25) and UMW Holdings Bhd (FV: RM4.60) while it also has a “buy” call on MBM Resources Bhd (FV: RM5). – June 8, 2022
