DESPITE the expiry of the sales and service tax (SST) exemption for new car orders on June 30, Hong Leong Investment Bank (HLIB) Research expects 2H 2022 total industry volume (TIV) to remain strong, supported by over 264,000 order backlogs (still entitled for SST exemptions for deliveries by March 31, 2023).
Although the Government has indicated 264,000 units of order backlogs when it made the announcement on June 20, the research house expects further surge in bookings by end-June 2022.
“Original equipment manufacturers (OEMs) with high order backlogs include Proton (DRB-HICOM Bhd), Perodua (MBM Resources Bhd & UMW Holdings Bhd), Toyota (UMW), Honda (DRB) and Mazda (Bermaz Auto Bhd),” analyst Daniel Wong pointed out.
“While we expect new orders to significantly slowdown in 2H 2022, we believe 2H 2022 sales will be mainly supported by the current high backlogs. We are maintaining TIV forecast for 2022 at 600,000 units (+17.9% year-on-year).”
As a whole, HLIB Research maintained a ‘neutral’ outlook on the sector with top picks on (i) DRB (target price: RM2); (ii) MBM Resources (TP: RM5); and (iii) Bermaz Auto (TP: RM2.05).
The research house expects global chip shortage which has caused disruption to the supply chain of the automotive sector since earlier part of 2021 to continue to improve in 2H 2022.
This is given OEMs are in continuous engagement with principals and various suppliers to secure sufficient inventories to fulfil the strong demand during SST exemption period. “Nevertheless, we remain cautious on TIV in 2023,” HLIB Research pointed out.
It also expects the ringgit to appreciate against the greenback by end-2022 to 4.23 (from the current 4.40 level after having depreciated from 4.15 in early 2022) while the RM/yen to remain stable at 3.30 (Bloomberg) by end-2022 (from current 3.25 after having appreciated from 3.65 since the start of 2022).
“Strengthened ringgit will reduce the effective input costs for imported completely built up (CBU) cars, completely knocked down (CKD) packs and raw materials, and subsequently improving OEMs’ margins,” noted the research house.
Major OEMs that have major exposure towards the US dollar include Toyota (UMW) and Nissan (Tan Chong Motor Holdings Bhd) while the yen exchange rate would impact Honda (DRB) and Mazda (Bermaz Auto). – July 6, 2022
