MIDF Research has maintained its neutral call on the automotive sector amid the coronavirus outbreak. In a note on Feb 5, it said based on a preliminary assessment, the virus does not entail significant supply risk for the majority of key listed Malaysian auto players, other than national carmaker Proton Holdings Bhd.
“From a domestic demand standpoint, we think it is too early to make a conclusive call at this juncture, though any impact is likely to be indirect in nature with the exception of perhaps, Sime Darby Bhd, which is exposed to sales operations in China,” it said.
That said, share prices of local auto players have retraced significantly in the past week, presenting attractive entry points.
“We maintain our buy on MBM Resources Bhd at an unchanged target price (TP) of RM4.55. At just 7x FY20F earnings, coupled with an attractive 6.7% yield, MBM remains a cheap proxy to Perodua’s volume expansion and the spillover on its parts manufacturing and Perodua dealership units,” it said.
The research house noted that the key catalysts for the company are the launch of Perodua’s new B-segment SUV in FY20F, a recovery in industrial production driven by the new national car launches and disposal of OMI Alloy (M) Sdn Bhd assets.
“Risk to our call is weaker-than-expected demand and a weaker-than-expected ringgit.” it said.
The research house has also maintained its buy call on Bermaz Auto Bhd with a TP of RM2.70.
It added the key catalysts for Bermaz are the launch of the CX8, facelift CX5 and CX30 in 2QFY20-3QFY20, dividend outperformance, over 50% increase in FY20F export volumes driven by the CX8, potential national automotive policy (NAP) incentives to drive complete built-up (CBU) exports, potential introduction of a third complete knocked-down (CKD) model and potential brand expansion riding on Inokom’s enlarged capacity and Bermaz’s solid balance sheet.
AmInvestment Bank Bhd Research is also positive on the counter, upgrading its call on Bermaz to buy from hold but with a lower fair value (FV) of RM2.12 from RM2.35, based on a FY21 PE of 13x, which is in line with its three-year historical average.
“We believe the stock’s valuation is undemanding at this level (versus the sector average PE of 12.2x).
“We trim Bermaz’s FY20-21 core net profit forecasts by 17-10% after factoring in more conservative sales volume assumptions for the group’s domestic market,” the research house said.
AmInvest maintains its sector view that the near-term macroeconomic environment will still be challenging for foreign and premium car brands – the space where Mazda operates in – as consumers are more careful and conservative with their discretionary spending.
“However, we strongly believe that the stock is undervalued at current levels, providing an attractive entry and a decent upside for investors,” it added.
MIDF Research shared that during the SARS outbreak in 2003 (November 2002–July 2003), Malaysia’s total industry volume (TIV) for vehicles fell 6.7% yoy to 405,745 units.
However, it is important to note that it was only Malaysia among the big four auto markets in Asean (the others being Thailand, Indonesia and the Philippines) that saw a TIV contraction given a Malaysia-specific issue; consumers adopted a “wait and see” attitude on expectations of a fall in car prices as the government back then revised its tariff structure in preparation for the Asean Free Trade Agreement (AFTA). – Feb 5, 2020
