KUALA LUMPUR: The strengthening ringgit bodes well for the domestic auto sector, serving as one of the sector's catalysts for this year, says MIDF Research.
The research firm said UMW Holdings Bhd and Tan Chong Motor Bhd in particular are key beneficiaries to the rising strength of the ringgit against the US dollar as both are exposed to US dollar-denominated import of completely knocked-down (CKD) kits and completely built-up (CBU) vehicles.
"Every 1% change in USD:RM is estimated to impact UMW’s FY23F earnings by 3.7% and TCM’s FY23F by 17%.
"TCM’s bottomline is more sensitive to USD:RM movements as our FY23F net profit is close to break-even levels," it said in a note.
MIDF, which has a "positive" rating on the auto sector, said the favourable currency environment adds to a slew of upside factors this year, including players starting 2023 with a strong six-to-nine-month order backlog and the increased pace of new launches.
It noted also the improved macro environment, including easing inflation and improved labour market.
Auto players are also sitting on large net cash piles, which will underpin attractive dividends and mergers and acquisition potential, it added.
According to MIDF, the US$-ringgit rate stands at RM4.34, since hitting a trough of RM4.75 and embarking on an uptrend in the fourth quarter of 2022.
The research firm attributes this uptrend to weaker US economic data, which has lifted hopes the US Federal Reserve would ease the pace of monetary policy sooner rather than later.
Meanwhile, Bermaz Auto Bhd could be seeing some downside pressure as the Japanese yen has rebounded against the ringgit to a rate of RM3.38.
"For now, every 1% change in the JPY impacts BAuto’s FY23F earnings by 0.9%," said MIDF.
The research firm said the exposure comes from the car distributor's Mazda CBU purchases, which represent about 30% of sales.
Bermaz's CKDs are purchased from 30%-owned Mazda Malaysia Sdn Bhd in ringgit, which carries little forex risk.
However, it added that the launch of the CKD CX30 and CKD Kia models (Carnival, Sorento, Sportage) is expected to reduce the group's forex exposure going forward.