AS the scramble for new car orders continues, RHB Research has mooted the possibility of the Government extending the Sales and Services Tax (SST) exemption on new car purchases beyond May 31.
“All eyes are on the Government’s decision on whether the SST holiday will be extended,” commented analyst Jim Lim Khai Xhiang in a 1Q 2022 wrap on the automotive sector.
“Given the long waiting time and many customers’ inability to take advantage of the tax exemption, we think there might be a possibility that it could be extended. Also, the 15th General Election (GE15) may provide an additional impetus to extend the SST holiday.”
If this pans out, RHB Research said it may have to re-look at its 2022F total industry volume (TIV) and potentially adjust its figures.
Currently, the research house’s full-year projection is currently at 580,000 units vs the Malaysian Automotive Association’s (MAA) estimate of 600,000 units.
From its recent post-results briefings, RHB Research gathered that customers in 1Q 2022 continued to place their orders to qualify for the SST exemption.
“Interestingly, they continued placing orders in April/May when most orders likely would not have qualified for the exemption – since the buyers would only receive their vehicles after June,” observed the research house.
According to RHB Research, Bermaz Auto Bhd took advantage of the last-minute scramble for orders by offering to absorb its customers’ SST if they placed their orders before May 31.
“As a result, it currently has a record-long backlog of orders lasting five to six months. Backlog orders across the board are still very long, namely four months (on average) for UMW Holdings Bhd and five months for Perodua.”
All-in-all, the research house is still “neutral” on the automotive sector despite the possibility of a SST exemption being extended.
“While an extension of the SST holiday could bode well for car demand, we are cautious on near-term headwind which include (i) a strengthening US$/ringgit rate which may adversely impact UMW’s and Tan Chong Motor Holdings Bhd’s margins; (ii) costlier car components which may pressure margins; and (iii) softer consumer appetite due to inflationary pressures.”
Downside risks that may hamper the sector’s recovery include persistent shortages of key components and delays in new model launches in addition to the tightening of bank approvals for car loans and a sharp weakening of the ringgit. – June 15, 2022
