AT a glance, Malaysia’s automobile sales are expected to remain robust in 2H 2022 in view of the present substantial order backlogs with the sector expected to benefit from an improvement in the global chip supply.
However, that the sector’s valuation could de-rate due to a cyclical car demand downturn from a high base, hence prompting UOB Kay Hian Research to maintain its “underweight” outlook on the sector.
“Additionally, the ongoing weakening of the ringgit against the US dollar and the prolonged chip shortage could pose downside risks to the sector’s earnings,” opined the research house in a sector update.
“Based on the companies under our coverage, we are forecasting a 6.8% and 4.6% fall in sector earnings and revenue in 2023 respectively.”’
In this regard, UOB Kay Hian Research has downgraded Bermaz Auto Bhd to “hold” from “buy” with a target price of RM1.72.
Key re-rating catalysts for Bermaz are:
- Localisation of CX-30 and Kia Carnival which will help improve margins;
- Its Kia and Peugeot franchises gaining traction at a faster-than-expected rate; and
- New model launches as Bermaz has just launched Mazda’s first electric vehicle (EV), the MX-30, followed by Peugeot Landtrek in 3Q 2022 and Peugeot 2008 EV and KIA Sorento in 4Q 2022.
Similarly, UOB Kay Hian Research also downgraded UMW Holdings Bhd to “hold” from “buy” with a target price of RM3 on concerns that the further strengthening of the greenback vs ringgit could erode the company’s margins.
“Based on our earnings sensitivity analysis, a 1% strengthening/weakening of the ringgit against the US dollar could increase/decrease UMW’s FY2022-2023 earnings by 3%,” cautioned the research house.
“Car sales in 2023 would be supported by its first locally-assembled hybrid EV (Toyota Corolla Cross) and Toyota Camry new facelift. Meanwhile, the company’s bottom line would be supported by the launch of Toyota Veloz which replaces the now-discontinued Toyota Avanza as well as the all-new Perodua Alza.”
On a brighter note, UOB Kay Hian Research expects sales to bounce back as carmakers ramp up their production to clear massive backlog orders and expedite delivery of vehicles to customers.
“The fall in sales announced in May comes as no surprise due to a short working month (Hari Raya holidays) and the ongoing shortages of chips and components as well as logistic delays which hampered car makers,” justified the research house.
Moreover, 2H 2022 sales volume will be cushioned by order backlog as per revealed by Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz that about 264,000 units of vehicles had been ordered during the sales and service tax (SST) exemption period but have yet to be delivered to their new owners because of global supply chain disruptions.
“However, these order numbers have increased dramatically after the announcement that the SST exemption would not be extended as car buyers took advantage of the situation to lock in orders before the deadline to be able to enjoy the tax incentives,” noted UOB Kay Hian Research.
“Most of the car makers have been receiving positive bookings that will keep them occupied at least for the next five to six months (from now till the end of the year).” – July 21, 2022
