MOST investment analysts are leaving their “neutral” call on automotive sector stocks unchanged following the latest revision of the tax structure on motor vehicles.
They said the squeeze on profit margins as a result of intense competition and higher input costs would continue to be a drag on the earnings growth of listed companies in the sector.
“Imported auto parts have become more expensive due to the sharp appreciation of the Japanese yen. On top of that, we have escalating steel prices, a major raw material for the manufacture of vehicles,” said an analyst with a stockbroking house.
In the year to date, sales of new motor vehicles in the country totalled 435,051 units, or 16.2% more than the 374,272 units registered in the corresponding period of 2003.
And analysts reckon that vehicle sales will continue to expand as more new models are launched by carmakers in their fierce competition for market share.
Nonetheless, they are rather sceptical that higher sales volumes would help to enhance the automobile companies’ bottom line.
HLG Asset Management Sdn Bhd senior fund manager Mike Lai said motor stocks were generally trading at a low price-earnings ratio but it was hard to have an overweight rating on them because of concerns over the companies' earnings growth prospects.
What would attract investors would be the dividend paid by the companies, he said.
In terms of share price performance, Proton Holdings Bhd's stock is surprisingly among the few that have fared well in the second half of the year, although many analysts think that the operating environment is getting harsher for the national carmaker.
Tan Chong Motors Holdings Bhd has also seen its shares climb steadily in price since August, but not UMW Holdings Bhd, whose share price has been on a declining trend for most of the year.
Indeed, the listed automobile companies, in their latest results announcements to Bursa Malaysia, had also admitted that an increase in sales margins did not necessarily benefit their profitability.
“Sales of motor vehicles should be strong in the next quarter with the recent launch of a new model. However, higher motor vehicle selling expenses and volatile foreign exchange rates will affect overall contributions,” said UMW Holdings, which assembles and distribute both national and non-national marques, when it released its third-quarter earnings numbers last month.
Hyundai car distributor Oriental Holdings Bhd also pointed out in its results announcement that the fierce competition among automobile distributors would inevitably erode the thin margins already faced by the industry.
Some analysts were surprised that the Government had decided to slash to zero the import duty on completely-knocked-down components brought in for the local manufacture and assembly of vehicles.
But most were disappointed that the authorities did not announce anything on the approved permit (AP) system, a hot topic in the local motor industry.
Vehicle distributors currently have to fork out large sums to AP holders in order to gain permission to bring foreign marques into the country.
Over the next six months, the Government is expected to make an announcement relating to APs.
Analysts do expect some upward adjustments to car prices, particularly those of national cars that have lower import content, although they do not foresee a quantum jump in the prices.
They said national cars would see bigger price increases in term of taxation compared with non-national vehicle because the cut in import duty on auto parts was not sufficient to offset the jump in excise duty.
“The disparity between national and non-national cars will narrow,” said Avenue Securities motor analyst Keith Wee.
The Ministry of Finance said yesterday it did not expect major price changes for cars produced or assembled in the country next year because the local automotive industry would enjoy fiscal incentives similar to those granted to other sectors of the economy.
Some analysts speculated that the authorities would unveil an incentive for the national carmakers based on the size of their investment in research and development.
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