KUALA LUMPUR: Analysts are upbeat about the outlook of the automotive sector this year, despite the more cautious and conservative forecast presented by the Malaysian Automotive Association (MAA) last week.
While the MAA expects total industry volume (TIV) to decline 9.8% year-on-year to 650,000 units in 2023, some analysts anticipate sales to even surpass 2015 performance of 666,674 units, a record that was only broken last year. TIV hit a new record high of 720,658 units in 2022.
Kenanga Research expects TIV for 2023 to hit 690,000 units, premised upon strong reception to new launches, a pause in interest rate hikes and the deferment of new excise duty regulations.
The research house expects better traction for new models such as the Proton X90 and Honda BRV, as well as the continued delivery of the Perodua Alza and Proton X50.
Additionally, it said the pause in interest rates hikes will cap the rise in financing cost for auto purchases.
Kenanga Research also expects further easing of supply-chain disruptions following China’s reopening of its borders.
“Vehicle sales in 2023 will be driven by the continued delivery of order backlogs to the tune of 300,000 units, which are still at fairly strong levels compared to bookings of 350,000 units three months ago.
“This indicates that deliveries had partly been replenished with strong new bookings, especially for attractive new models even in the absence of sales tax exemption,” it said in a report yesterday.
Kenanga Research added that vehicle sales will be supported by launches of new electric vehicles (EVs).
It pointed out that EVs enjoy tax exemptions and other EV facility incentives up to 2023 for completely-built-up units (CBU) and 2025 for completely-knocked-down (CKD) vehicles.
“We believe vehicle sales will remain robust in 2023, supported by the reopening of the economy and financial assistance to the low-income group.”
Kenanga Research said subsidies on fuels, electricity and selected food items, a relatively stable job market and healthy household balance sheets of the M40 group will also help to spur TIV this year.
Meanwhile, MIDF Research, which is targeting car sales to hit 678,000 units this year, expects TIV to remain elevated in 2023.
It, however, does not rule out the possibility of TIV re-testing last year’s record, given the large backlog orders and still strong new bookings momentum. “Our current 2023 TIV forecast is still higher than the prior record high of 666,631 units achieved in 2015.”
Additionally, MIDF Research expects the return on equity for the auto sector in 2023 to remain at double-digit levels of 12%.
“The sector’s 2023 dividend yields are also expected to remain attractive at an average of 5%. Underpinning this further are an improving underlying macro backdrop, a more gradual pace of interest rate normalisation and the strengthening ringgit,” it said in a report.
MIDF Research noted that the ringgit has strengthened further in the past week, providing a tailwind to the sector as it effectively lowers CBU imports and kit costs.
It said UMW Holdings Bhd and Tan Chong Motor Holdings Bhd are the key beneficiaries, as their imports are predominantly US dollar-denominated.
“The yen is sharply weaker again, after the Bank of Japan reiterated its dovish policy to support its economy.”
The research house said Bermaz Auto Bhd (BAuto) is a big beneficiary as it is exposed to yen-denominated imports for Mazda CBUs (which accounts for 20% to 30% of sales).
“Going forward, however, BAuto is looking to reduce exposure to foreign exchange volatility by increasing CKD contribution via the upcoming launch of the CKD Mazda CX30.”
Meanwhile, RHB Research is much more conservative about its outlook for the automotive sector, as it forecast TIV to soften to 600,000 units in 2023.
“We expect 2023 earnings to decline from a high base (due to softening sales) and as forward valuations are at or above historical averages.”
The research house said its lower TIV forecast is mainly premised on softer demand due to the lack of tax exemption and higher car prices.
“We expect the first quarter of 2023 to be robust, as it is the last quarter for companies to deliver the sales tax-exempt orders.
“While the companies likely already have orders on hand to be delivered in the second quarter of 2023, they lack visibility on the orders to be delivered in the second half of 2023.”