PETALING JAYA: Analysts are cautiously optimistic that automotive companies will see a rebound in earnings this year, underpinned by the vehicle tax holiday extension.
The tax holiday is seen as a much-needed buffer to help boost sales and absorb the impact of the multiple lockdowns imposed this year.
CGS-CIMB in a report noted that the Malaysian auto sector registered an 86% year-on-year core net profit growth in the first quarter of 2021, driven by higher sales volumes on the back of the extension in the tax holiday.
It added that the higher first-quarter earnings were also attributed to the lower base in the first quarter of 2020, due to the implementation of the movement control order (MCO) that was implemented in March last year.
“We are still projecting the Malaysian auto sector’s earnings to rebound with a 34% net profit growth in 2021.
“The sector trades at 14.2 times 2021 price-to-earnings ratio, in line with our target sector price-to-earnings ratio of 14-times.”
In spite of the MCO implementation last month, CGS-CIMB said it is keeping its 2021 total industry volume (TIV) forecast of 580, 000 units this year.
“We expect the sector to benefit from the government’s decision to extend the sales tax holiday until Dec 31, 2021 under the recently-announced Pemerkasa Plus package.”
On the assumption that no vehicles are delivered this month, CGS-CIMB said its 580, 000 TIV forecast for this year would imply an average of 57, 000 vehicles sold per month from July to December.
This would still be 3% below the TIV of 59, 000 per month recorded during the sales tax holiday from July to December last year.
“Hence, we think our TIV forecast is achievable, assuming the government does not extend the full MCO into July. If that happens, we see a 10% downside to our 2021 TIV forecast of 580, 000.
“Meanwhile, we look forward to the upcoming National Automotive Policy revision in the second half of 2021, which could provide a better direction for Malaysia’s vehicle electrification strategy, following the release of the 2020-2031 Low Carbon Mobility Footprint draft.”
Under the vehicle tax exemption, locally-assembled cars are fully-exempted from sales tax while for imported cars, the sales tax has been reduced from 10% to 5%.
According to data by the Malaysian Automotive Association (MAA), total vehicle sales in Malaysia surged to 57, 912 units in April this year, as sales in the previous corresponding period were drastically affected by the implementation of the MCO.
Only 152 vehicles were registered in April 2020. As at April 2021, total vehicle sales were up 89% to 199, 556 units from 105, 424 units.
For this year, MAA projects TIV to grow 8% to 570, 000, on the back of the renewed sales tax exemption and stronger economic recovery. The MAA is scheduled to have its second bi-annual meeting next month, where it will announce whether it will be maintaining or revising its 2021 vehicle sales forecast.