KUALA LUMPUR: CIMB Equities Research is retaining its underweight call on the automobile sector due to sluggish sales, and margin erosion from higher operating expenditure (opex )and intense competition.
It said on Tuesday the sector trades at 1.1 times CY18 price-to-book value (P/BV), in line with its three-year historical mean.
“However, disappointing earnings over the next one year could present downside risks. Key upside risks to our call is the strengthening of RM vs. US$ and JPY and better-than-expected TIV growth. Bermaz remains our top auto sector pick,” it said.
Total industry volume (TIV) fell 12.3% on-year, from 57,358 in June 2016 to 50,275 units in June 2017, on fewer working days due to the Hari Raya holidays.
Apart from that, June’s TIV also fell by a marginal 0.6% on-month due to sales adjustments following the stronger sales performance in May during the pre-Raya promotions.
The Malaysian Automotive Association (MAA) expects sales in July to stay flattish due to potential delays in registration following uncertainties arising from the liberalisation of motor insurance.
CIMB Research said that 1H17’s TIV grew 3.3% on-year to reach 284,461 units, driven by higher passenger vehicles sales of both national and foreign brands, which rose 4.5% and 4.8%, respectively.
The growth came from various new model launches from both foreign and national brands. In addition, the stronger TIV sales were also in line with higher hire purchase loan applications and approvals in 5M17, which are up 6.3% and 7.4% YTD, respectively.
Despite the improving TIV sales, the MAA said total vehicle production volume fell by 2.9% on-year in 1H17.
The MAA attributed the production decline to the cautious stance taken by the automakers, and inventory adjustments amid the soft market environment.
Perodua remained the local brand market leader with a 35% share after selling 99,759 vehicles in 1H17 (+2.5% on-year).
Honda continued to show impressive growth, raising its market share from 14.4% in 1H16 to 18.5% in 1H17, driven by new models launches – BR-V, City facelift, Jazz facelift, CR-V and City hybrid – as of July.
Meanwhile, Proton stayed in third place, with a 13.9% market share, after recording 10% growth YTD.
“We expect TIV sales growth to ease in 2H17 due to a high base in 2H16, given the total 2H16 TIV grew by 11% half-on-half.
“The sector is also facing headwinds from currency volatility, which has resulted in higher import costs for completely built-up models and completely knocked-down kit components. We expect the market to remain competitive, with prolonged discounting as dealers continue to drive down inventory levels. Overall, we still project a 3% TIV growth in 2017F,” said CIMB Research.
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