All eyes will be on Proton Holdings Bhd as the national car company plots its return to the top with Chinese strategic partner Zhejiang Geely Holding Group Co Ltd in the driving seat.
KUALA LUMPUR: CIMB Equities Research forecasts a tepid 2% growth in total industry volume (TIV) for the automobile sector in 2018, driven by stronger sales in the passenger vehicle (PV) segment from both domestic (+2%) and foreign (+3%) brands.
Nevertheless, it projects commercial vehicle (CV) segment sales to continue to slide in 2018F due to weak demand for pick-up trucks.
“In addition, we see stronger growth in the sports utility vehicle (SUV) segment, driven by the new Mazda CX-5, Honda CR-V and upcoming Toyota C-HR. Moreover, we view the pending launch of Proton’s first SUV model in 4Q18 as another driver of SUV demand in 2018,” it said on Monday.
CIMB Research sees the strengthening of the ringgit vs. US$ and Japanese yen as a positive for the automotive sector, as it will help automakers reduce the cost of imported completely knocked-down (CKD) kits and completely built-up (CBU) units.
“Tan Chong and UMW Holdings are winners of the ringgit's appreciation vs. US$ given that 50% of their total manufacturing costs are denominated in US$.
“We maintain our Underweight call on the sector due to persistent weakness in consumer sentiment and potential margin erosion from higher operating expenditure (opex) and intense competition. The sector trades at 1.2 times CY19F price-to-book value (P/BV), in line with its three-year mean.
“However, disappointing earnings this year could be a downside risk. Key upside risks are the further strengthening of the RM vs. US$ and yen, and better-than-expected TIV growth,” it said.
To recap, new vehicle sales in January 2018 fell by 0.2% on-year following the higher sales volume recorded in December 2017 on the back of year-end promotions and offers.
The Malaysian Automotive Association expects sales volume in February 2018 to be lower on-month with the shorter working month due to the Chinese New Year festive holidays.
“We view the 25 bps overnight policy rate rate hike at end-January 2018 as negative for the sector as it could affect demand in the mass market segment.
“We expect the sector to benefit from the strengthening in ringgit vs. US$ and yen. Maintain Underweight due to weak sales outlook and margin erosion from rising competition. DRB-Hicom remains our top pick, premised on narrowing losses at Proton,” said CIMB Research.
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