A strategic partner is crucial for loss-making Proton's turnaround.
PETALING JAYA: Hong Leong Investment Bank Research (HLIB) expects 2017 to be another tough year for the automotive industry, with total industry volume (TIV) for 2017 expected to record a mild 5% year-on-year growth to 600,600 units.
The research house said the sector was expected to continue being undermined by the ongoing weak consumer sentiments as well as weakening of ringgit, which had impacted on cost structure and margins.
In addition, it said the tightened bank lending requirements would also continue to affect sales volume. Nevertheless, it expect national OEMs to sustain sales volume in 2017.
“2017 will be another tough year for the automotive industry. Nevertheless, we expect 2017 TIV to be 600, 600 units, a growth of 5% year-on-year, mainly driven by new models contribution and recovery of consumer sentiments (towards 2H17),” HLIB said.
It said 2016 TIV was expected to register circa 572,000 units, a drop of 14.2% year-on-year due to deterioration in consumer sentiment (as well as tightened lending guideline) despite the ongoing aggressive sales and marketing campaigns by OEMs to boost sales and compete for market share.
As in the past, sales for December 2016 may spike as consumers buy ahead to take advantage of year-end sales deals.
HLIB said OEMs with new model launches in second half of 2016 and 2017 would likely gain market share at the expense of the OEMs with lack of new volume driving models.
“Proton and Toyota will enjoy full year contribution from new model launched in second half of 2016. Furthermore, Perodua, Proton (potentially new SUV model) and Honda are expected to leverage on new model launches in 2017. Continuation of ‘trading down’ effect in 2017 will provide competitive advantage to national OEMs in gaining market share as witnessed in 2014-2016, from 46.7% to 48.2%,” it said.
HLIB is maintained its “underweight” on the automotive sector outlook with DRB-Hicom and MBM Resrouces as top picks, mainly due to their distressed valuation.
It has a “buy” on DRB-Hicom with an unchanged target price of RM1.35 based on sum-of-parts. It said its recommendation was premised on the significant undervaluation of DRB-Hicom assets (even after excluding automotive division) and potential emergence of foreign strategic partnerships.
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