Demand for cars still in gear

MIDF Research in a report yesterday said the current nationwide lockdown had only delayed the automotive industry’s path to recovery, rather than derail it completely.

PETALING JAYA: The Covid-19 pandemic which has slammed the brakes on the local automotive sector, is seen by analysts as a temporary bump in the road to recovery.

MIDF Research in a report yesterday said the current nationwide lockdown had only delayed the automotive industry’s path to recovery, rather than derail it completely.

“The key issue is a potential production shortfall, which hinges on the timing of the resumption of sector operations.

“In contrast, demand remains relatively strong with two to four months of outstanding bookings, given support from the tax holiday, cash transfers under the fiscal stimulus programmes and a low interest rate environment.”

MIDF Research said a more critical indicator to look out for would be the ability for the country to achieve its herd immunity target, which will underpin a return to normalcy and sustainable recovery.

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“The pick-up in the vaccination rate now lends visibility to the country’s 80% vaccination target by year-end, which in turn underscores our positive view on the sector as a recovery play.”

The research house said listed auto players under its coverage (which comprise mainly distributors except for MBM Resources Bhd), have built up strong balance sheets following strong sales in the past 12 months, thus providing leeway to wade through the lockdown.

Bermaz Auto Bhd and MBM Resources are in comfortable net cash positions, while all companies saw improved net gearing positions.

“Secondly, selective players we talked to last week are understood to be taking proactive measures in vaccinating staff and their vendors, with a target of completing their vaccination programme by mid-August.”

Citing the Malaysian Automotive Association (MAA), MIDF Research said shipments of completely-knocked-down kits are still incoming, albeit with slow port clearance.


“This could, to a certain extent, support a production ramp-up once the sector resumes operations.”

Kenanga Research meanwhile is lowering its 2021 total industrial volume (TIV) target to 460,000 units from 545,000 units initially, on the back of the ongoing nationwide lockdown.

“With no end in sight for the nationwide lockdown, we have cut our 2021 TIV target, coinciding with MAA’s lowered target of 500,000 units from 570,000 units previously.

“Nevertheless, we expect stronger recovery next year with a 2022 TIV target of 600,000 units.

“This will be closely in line with MAA’s target of 605,000 units.”

The research house said growth next year would be driven by the expected recovery of the economy post-lockdown, as well as the assumption that herd immunity will be achieved by then.

Kenanga Research said this will inevitably lead to the relaxation of standard operating procedures toward revitalising local travel, which should push demand for passenger vehicles (especially the affordable national marques).

RHB Investment Bank meanwhile said it is maintaining its 2021 TIV forecast at 520,000 units. It is, however, projecting weaker second-quarter 2021 corporate earnings. “We expect the upcoming quarterly results to miss expectations across the board. Companies are likely to report losses in the month of June due to minimal operational activities.”

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