THE automotive sector is expected to rebound stronger in the near term, said MIDF Research, based on a significant increase in vehicle sales in May.
MIDF analyst Hafriz Hezry said that last month witnessed a total industry volume (TIV) of 22,960 units, against April’s 141 units, which was when the movement control order (MCO) was implemented as the country reeled from the Covid-19 crisis.
The TIV for May also came in marginally higher than the TIV for March, which was at 22,478 units, despite registration processes only able to start in mid-May, when the operations of the Road Transport Department fully resumed. However, it was also noted that March saw a half-month impact from the MCO as well.
“We expect a further sequential rebound in June as operations fully resume, coupled with a demand boost from the tax holiday running from June 15 till Dec 31, 2020,” said Hafriz, adding that car prices have reduced by between 2% and 7%, given savings from the sales tax exemption measure.
He also noted that channel checks with selective industry players have shown early signs of sales improvement after the announcement of the tax holiday on June 5, which comes under the Penjana stimulus package.
However, Hafriz also warned that the sudden increase in TIV may not be sustainable.
“It is difficult to ascertain if this strong trend is sustainable as we are still in the early stages of the 6.5-month-long tax holiday, but these early trends are definitely encouraging,” he said.
Hafriz also noted that the tax holiday, the liquidity created for consumers from various stimulus measures, which transfers “massive amounts of cash” into consumer pockets, as well as the low interest rate environment are strong catalysts to drive a rebound in vehicle-buying sentiment. This is despite the impact to consumer sentiment from the lockdown measures to contain Covid-19.
As such, MIDF maintains a positive call on the auto sector, with Bermaz Auto Bhd and UMW Holdings Bhd as top sector picks. The former sees a buy call with a target price of RM1.95, while the latter also sees a buy call with a target price of RM3.40.
At 12.35pm, Bermaz Auto’s shares were last done at a static RM1.55, while UMW’s shares were last done at RM2.66, down a sen. – June 26, 2020
