Total vehicle sales to fall

PETALING JAYA: Total vehicle sales could plunge 20% this year, as the Covid-19 crisis wreaks havoc on the auto industry.

Affin Hwang Capital in a report yesterday said it expects March and April car sales volume to be badly hit due to the temporary suspension of operations, which has been extended to April 14 under the movement control order.

“Overall, we forecast 2020’s total industry volume (TIV) to plunge 20% year-on-year (y-o-y) to 485,000 units, given the developing Covid-19 crisis, weaker consumer sentiment and resultant recent downward revision to our gross domestic product (GDP) forecast.

“Elsewhere, we think Malaysians may tighten their belts to settle with a national-brand car under tough market conditions, ” it said.

The research house added that auto margins will also see erosion in 2020, due to the weakened aggressive discounting factor and higher completely-built-up prices from the new excise duty regulation.

“Our economics team recently revised its ringgit-to-dollar year-end target to RM4.30 to the dollar. In our view, the depreciation of the ringgit will negatively impact the auto sector, especially for non-national brands, owing to higher imported raw material costs that may be difficult to pass on to customers in a weak demand environment.”

MIDF Research, meanwhile, said it was slashing its 2020 TIV forecast to 581,367 units from 605,375 units previously, given the developing headwinds and the resultant downward revision of the country’s GDP forecast.

“We now project a 3.8% y-o-y contraction instead of a 0.2% y-o-y growth previously. Compounding the expected demand contraction is our expectation of a weaker ringgit this year, which will inflate original equipment manufacturers’ (OEM) cost base to a certain extent this year.

“We estimate around 9% to 20% (depending on the localisation rate) of an OEM’s blended cost base to consist of imported components, which is exposed to foreign-exchange fluctuations, mainly in the dollar and yen.”

The research house said the combination of weaker demand and weaker ringgit is expected to hit the auto sector earnings this year.

“In this report, and in line with the cut in our 2020 TIV, we have trimmed our aggregate sector earnings by 24.1% and 24.2% over 2020 and 2021, respectively.

“Forecast risk is expected to rise over the next 12 months, given the uncertain macro situation, notwithstanding the fiscal and monetary measures announced thus far.”

Separately, Kenanga Research said it is cutting its 2020 sales target by 6.7% to 560,000 units from 612,000 units previously, on cautious consumer spending in the first-half of 2020 on high-value discretionary spending such as vehicles, imported goods and overseas travel.

“We believe that the quantum of TIV decline will not be as severe as the 1997 and 1998 Asian financial crisis, but below the 2008 sub-prime crisis based on the current state of the Malaysian economy.

“As all the companies under our coverage are already experiencing a sharp fall in their share prices, we believe the downside is limited.

“Thus, we maintain our calls but are revising target prices to reflect the lowest valuation possible for most of the stocks and expect a better second-half 2020 on recovering consumer sentiment and the stream of all-new model launches.”