By Xavier Kong
AMINVESTMENT Bank has a neutral stance on the automotive sector as it expects a marginal 1.1% growth in total industry volume (TIV) of 610,000 units for 2020. It said growth in the first half will be supported by sustained strong performances from national auto players Proton and Perodua.
“Other than the occasional festive and year-end promotions, the automobile sector still lacks major organic growth catalysts after the GST (goods and services tax) exemption period in 2018,” said AmInvest analyst Jeremie Yap Jake Hui.
He also expected competition to intensify in the B-segment passenger car division, as there will be several new launches, including the new Honda City CKD (completely knocked down), Honda Jazz CKD, and Nissan Almera.
“As these models are expected to enter the local auto market within a short period of time, they will provide consumers with wider options, thus likely to slow down the demand for Toyota passenger cars like the Yaris and Vios which were launched in 2019,” said Yap.
“This could lead to the possibility of UMW Toyota dishing out price discounts to hold up sales volume thus affecting profitability margins for its automotive segment,” he added.
There will also be an influx of a few key SUV models in 2020, with Yap of the view that the national SUVs, namely the Proton X70 and Proton X50, will be priced more attractively compared to non-national SUVs such as the Nissan Kicks, Mazda CX-3, and Honda CR-V, with the national cars also offering more features.
Yap believed that the upcoming National Automotive Policy (NAP) is likely to benefit Perodua, considering the direction of the NAP is to further push for initiatives that make Malaysia a regional hub for energy-efficient vehicles (EEVs). This could potentially materialise as further excise duty exemptions or customised incentives being accorded to carmakers that comply with EEV standards.
“If this materialises, we believe that it will benefit Perodua which has the highest concentration of EEV-certified models. This change could improve its product pricing competitiveness and expand its sales volume,” noted Yap, adding that non-Perodua EEVs may also stand to benefit from any change in duties or incentives.
AmInvest also believed that there could be another overnight policy rate (OPR) cut, to 2.75%, in the first quarter of 2020, though this was not expected to significantly impact the automobile sector or sales of vehicles.
The research house said an upgrade catalyst would involve the reduction of excise duties across the board through government initiatives, which would in turn increase the number of affordable cars, spurring demand.
Downgrade catalysts include weakening consumer sentiment, as well as heightened global trade tensions, which would lead to a steep weakening of the ringgit against the US dollar, threatening margins and necessitating price hikes to maintain profitability levels.
Top picks from AmInvest for the sector are MBM Resources Bhd, DRB-Hicom Bhd, and Pecca Group Bhd. MBM Resources is noted as being undervalued, but expected to continue doing well as a direct proxy to Perodua. DRB-Hicom has gradually emerging value with Proton’s improvement in earnings in a short span of time, with the turnaround not fully priced in yet. Pecca Group is another beneficiary to Perodua’s “supremacy” in the sector as the sole supplier of its leather seats.
