Proton
KUALA LUMPUR: The automotive sector is expected to have another tough year with total industry volume (TIV) at 665,000 units before potential recovery in 2017, according to Hong Leong Investment Bank Research (HLIB).
“We expect 2016 to be another flat year for TIV (if not worse) at 665,000 units. Both national cars Perodua and Proton are likely to gain market share in 2016 on the back of new launches during the year.
“The TIV for 2015 is expected to record 665,000-668,000 units, relatively flat versus 2014 of 666,500 units. The deterioration in consumer sentiment was being upheld by the on-going aggressive sales and marketing campaigns by the various original equipment manufacturers (OEMs), which had affected their margins,” HLIB said.
The research house said consumer confidence index has deteriorated to record low 70.2 points in third quarter 2015 (worse than 2008 financial crisis level at 70.6 points), affected by higher cost of living and lower purchasing power.
Likewise, it said the demand for cars was likely to remain lackluster in 2016, supported mainly by aggressive sales and marketing campaigns (eroding OEMs’ margin) as well as new model launches by Perodua and Proton.
“The continued tight banks’ lending practices will continue to affect hire purchase approvals (especially car buyers in the lower income group) as banks exercise more discipline on risk-based pricing. Hence, 2016 will be another year of constraint in terms of financing,” HLIB said.
Furthermore, it noted that the weakened ringgit against other major currencies (US dollar and Japanese Yen) by 9-18% year-to-date had severely increased OEMs’ input cost structure and affected their margins.
“The full impact of weakened RM will only be seen in 2016. Several OEMs have decided to increase car prices by Jan 2016. That said, OEMs may eventually resort to usual aggressive sales and marketing campaigns, hence offsetting the benefits of price hikes,” it said.
HLIB has maintained “underweight” on automotive sector, given the lackluster outlook in 2016 – deterioration in consumer sentiment and margin erosion due to lower sales volume,
higher input cost (due to weakened ringgit) and higher spending on sales and marketing expenses.
“Our top picks for the sector are DRB-Hicom and MBM Resources on the premise of distressed valuation,” it added.
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