KUALA LUMPUR: The appreciating ringgit against the US dollar is set to benefit automotive companies that have high exposure to the greenback.
MIDF Research expects UMW Holdings Bhd and Tan Chong Motor Holdings Bhd (TCM) to be the biggest beneficiaries from the appreciating ringgit against the greenback.
“Both are exposed to dollar-denominated imports of completely-knocked-down (CKD) kits and completely-built-up (CBU) units.
“A weaker dollar therefore effectively lowers import cost,” MIDF Research said in a report yesterday.
According to the research house, every 1% change in the US dollar to the ringgit is estimated to impact UMW Holdings and TCM’s financial year 2023 (FY23) earnings by 3.7% and 17%, respectively.
“TCM’s bottom line is more sensitive to foreign exchange (forex) movements as its FY23 net profit is close to break-even levels,” it noted.
Meanwhile, MIDF Research said Bermaz Auto Bhd (BAuto), which is exposed to the yen, is set to reduce its forex exposure.
“The yen has rebounded gradually after a very weak performance last year. BAuto is mainly exposed to the yen, mainly via its Mazda CBU purchases (30% of sales).
“Meanwhile, finished CKDs are purchased from 30%-owned Mazda Malaysia Sdn Bhd, hence carries little forex risk.”
BAuto, which is primarily engaged in the distribution of Mazda vehicles in Malaysia and the Philippines, ventured into the distributions and provisions of after-sales services and spare parts of two new vehicle marques during the financial year ended April 30, 2021, namely Peugeot and Kia.
MIDF Research said the imminent launch of the CKD Mazda CX-30 and CKD Kia models (Carnival, Sorento and Sportage) is expected to reduce the group’s forex exposure going forward.
“For now, every 1% change in the yen impacts BAuto’s FY23 earnings by 0.9%.”
MIDF Research is maintaining a “positive” stance on the local automotive sector.
“The stronger ringgit trend versus the US dollar underpins our sector thesis for 2023, which underlines a more favourable currency environment as one of the sector’s catalysts this year.
“On top of this, players are entering 2023 with a strong six to nine months order backlog and new launches are set to re-accelerate following delays in the past year.”
Additionally, the research house said the improving macro environment, namely easing inflation and improved labour market, are also set to drive domestic consumption.
“Players are sitting on large net-cash piles, underpinning attractive dividends and merger and acquisition potentials.”
According to projections, vehicle sales for 2022 are set to surpass the 700,000-mark for the first time. The official figures will be announced this Thursday by the Malaysian Automotive Association (MAA).
The anticipated record sales are mainly due to the sales tax exemption, which was introduced to mitigate the impact of the Covid-19 pandemic.
November 2022’s total industry volume (TIV) came in at 64,404 units, bringing the year-to-date TIV to 642,306 units.
In a statement last month, the MAA said sales for December are expected to be higher than November, spurred by year-end promotions and as car companies rush to fulfill outstanding bookings.
To date, the highest number of vehicles sold in a year is 666,674 units, which was achieved in 2015.