Auto sector in Malaysia to remain challenging

  • Business
  • Thursday, 08 Oct 2015

PETALING JAYA: The local automotive industry is expected to remain challenging for car companies for the remainder of 2015, on the back of prolonged tightening of banks’ hire-purchase rules and slowdown in the Malaysian economy.

In a research report yesterday, Hong Leong Investment Bank (HLIB) said the jump in fuel prices, interest rates and depreciation in the ringgit would also have an impact on local auto players.

“We expect the automotive industry to remain challenging on the back of volume decline (except for valued small-size cars such as Perodua), high input costs and high operational and marketing cost.”

Despite the measure to raise car prices, HLIB said the current stiff competition within the industry may defeat such move, as original equipment manufacturers (OEMs) continue to offer various incentive and promotional packages.

“The industry faces declining sales volume on the back of weakened consumer sentiments. OEMs will have to balance sales volume and prices.”

The research house has maintained an “underweight” call on the local automotive industry.

“Our top pick is MBM Resources Bhd, leveraging on sustainable demand for Perodua.” MBM has a 20% stake in Perodua.

Kenanga Research, meanwhile, said auto sales would gain momentum in the fourth quarter of this year, driven by aggressive advertising and promotional (A&P) activities, festivities and stronger seasonal patterns.

“Recall auto sales in the second half for the past three years accounted for 51% to 52% of the full-year total industry volume numbers.

“Meanwhile, to make up for the lagging sales caused by weaker consumer sentiment in the first half, we believe auto companies will be more aggressive on A&P activities for the remaining months of 2015.”

The research house added that stronger sales in the fourth quarter could very likely be at the expense of margins.

“Another concern is the unfavourable exchange rates, particularly for the auto players with high-denominated US dollar costs due to the import of completely-built-up (CBU) vehicles, completely-knocked-down (CKD) packs and other components.

“These have been evidenced in the sub-par second-quarter 2015 results of both UMW and Tan Chong where the higher CKD kits and CBU costs were the main culprits.”

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