Automotive sector has bottomed out, is set for earnings recovery


  • Auto
  • Monday, 24 Apr 2017

The ministry said the selection of a strategic partner is an important factor in the company

PETALING JAYA: Analysts are optimistic that the local automotive industry has bottomed out following three consecutive months of vehicle sales growth this year.

Maybank Investment Bank (Maybank IB) Research, in a recent report, said the “worst is likely over.”

“We take the view that the sector has bottomed out and is en route for an earnings recovery six to nine months from now, depending on the ringgit’s movement.”

The research house added that the recent uptrend in auto loan applications and approvals were signs of support for further vehicle sales recovery. Maybank IB said auto loan applications, on a three-month moving average basis, expanded for the first time in over a year, rising 7.1% year-on-year in February 2017 after contracting over the past 13 consecutive months.

It pointed out that the three-month moving average approval rate improved to 52% in February 2017 from just 48% in December 2016.

An analyst from a local bank-backed brokerage said he expects vehicle sales to maintain its growth trajectory into the second quarter, due to the upcoming Hari Raya holidays at the end of June.

“We expect sales to be boosted by promotional campaigns leading up to the festive period, which will help spur bookings ahead of Hari Raya.”

According to the Malaysian Automotive Association (MAA), total vehicle sales grew 10% to 53,717 units last month compared with 48,788 units in the previous corresponding period.

Sales rose 7% to 140,839 units in the first three months of this year compared with 131,251 units in the first quarter of 2016.

The MAA attributed the improved sales to the longer working month of March (compared with February), as well as the rush for deliveries by companies with their financial year ending in March.

On its outlook for April, the association said sales volume levels is expected to be on par with that of March, due to the continuation of aggressive promotional campaigns by car companies.

Hong Leong Investment Bank, however, is less optimistic about the local vehicle sector this year. “The sector is expected to continue being undermined by the ongoing subdued consumer sentiments and weak ringgit in 2017, which has impact on cost structure and margins.

“Nevertheless, we expect national original equipment manufacturers to sustain sales volume in 2017.”

Given the weaker consumer sentiment currently, Kenanga Research has also projected a less-than-stellar outlook for the local automotive industry.

“Driving around 2017, in view of higher living expenses, we believe consumers may continue to limit spending on big-ticket items.

“Furthermore, the unfavourable foreign exchange is still an issue for automakers, squeezing their profit margins with higher operating costs. With this, we gather there is lack of re-rating catalysts to bring about any significant shift in the sector,” it said.

Last year, a total of 580,124 vehicles were sold, narrowly meeting the MAA target of 580,000 units for 2016.

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