New launches to drive auto sector earnings in 2023

KUALA LUMPUR: With expectations that total industry volume (TIV) in the domestic auto sector will abate in 2023, automakers will have to leverage new model launches to lift sales figures.

Hong Leong Investment Bank (HLIB) Research said in a note it expects order backlogs to tail off in 1H23 following the end of sales and service tax (SST) exemption deliveries in end March 2023.

"OEMs with new model launches in 2022-2023 will be better positioned to attract consumers in order to sustain sales volume into 2H23.

"Exciting new models expected in 2023 include Perodua's new Sedan, the Aruz and Axia facelifts (MBM Resources, Pecca, HIL and UMW); Proton's new Sedan/MPV/SUV (DRB-Hicom); Honda's new CR-V, the new WR-V and BR-V (DRB-Hicom); and Toyota's new Vios, new Yaris and new EV model (UMW and HIL)," it said in a sector update.

Subsequently, the research house expects TIV to recover towards end-2023 due to normalising demand and more aggressive year-end sales.

In its projection for 2023 TIV, HLIB projects 630,000 units, which represents a 10% year-on-year drop due to the ending of SST exemptions.

Other factors impacting sales include the higher interest rate as a continued hike in overnight policy rate in 2023 to 3.25% from 1.75% in early 2022 may affect consumer sentiment in purchasing a new car.

HLIB expects the ringgit to appreciate further against the US dollar from the current level of 4.4 to average 4.34 in 2023 while the Japanese yen will remain at an average of 3.33.

It said the stronger ringgit will lower the effective input costs for imported completely built-up (CBU) cars, completely knocked-down (CKD) packs and raw materials, and subsequently improve original equipment manufacturers’ (OEM) margins.

It identified OEMs that have major exposure towards the US dollar to include Toyota (UMW) and Nissan (Tan Chong Motor), while for the Japanese yen, this includes Honda (DRB-Hicom) and Mazda (Bermaz Auto).

HLIB expects earnings for the sector to drop in 2023 due to lower sales volume and higher operating costs, although DRB is the exception due to Proton's sales growth.

"Our top picks are DRB-Hicom (BUY, target price: RM2.24) and MBM Resources (BUY, target price: RM5) for their strong leverage onto the national OEMs, ie Proton and Perodua, which have more sustainable sales volume and potential export growth in the longer term," it said.

However, it said DRB-Hicom is the exception due to Proton and Perodua, which has more sustainable sales volume and potential export growth in the longer term.

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