TA Securities Holdings Bhd is expecting a challenging environment for automotive players in 2020 with rising competition in the compact sport utility vehicle (SUV) space.
The research house said in a Dec 20 note that it expected competition to continue in 2020, especially in the A and B segments.
“With the rising competition in the compact sport utility vehicle (SUV) space, this will likely create a buzz and aggressive pricing strategy for the industry. Meanwhile, the petrol subsidy programme (PSP) for the Bantuan Sara Hidup (BSH) recipient group may spur demand for smaller engine capacity models, where Perodua and Proton are expected to be the main beneficiaries.
“We maintain our neutral stance on the sector. Weakening consumer sentiment and stringent hire-purchase loan requirements may dampen total industry volume (TIV) growth.
“Our TIV forecast for 2020 is 609,000 units, which implies a flattish yoy growth,” it added.
But, the research house is maintaining a buy call on Bermaz Auto Bhd (TP: RM2.34) and MBM Resources Bhd (TP: RM4.55). Meanwhile, UMW Holdings Bhd (TP: RM4.37) and Pecca Group Bhd (RM1.14) are still rated as sell due to pricey valuations. However, Sime Darby Bhd (TP: RM2.43) is rated as hold.
Moving forward, TA Securities is expecting a 7% sector earnings growth in CY20.
“We expect CY20 sector earnings to increase by 7% yoy, mainly driven by UMW and Sime Darby. We expect higher car sales for UMW, driven by the new car launch,” it said.
According to the Malaysian Institute of Economic Research (MIER), the Consumer Sentiments Index (CSI) for 3Q2019 slid further to 84.0 points from 96.8 points in 2Q2019.
The survey results revealed that consumers have been less enthusiastic as current finances are less favourable and other factors include weak job outlook and anxiety over rising prices.
Meanwhile, domestic spending momentum would not be as robust as in the previous quarter, while the external sector continues to be affected by global uncertainties.
“This indicates that consumers are most likely being cautious about spending on big-ticket items, in our view,” said the research house. – Dec 20, 2019