Upbeat outlook for vehicle sales

Kenanga Research said it has raised its 2023 total industry volume target by 4.3% to 720,000 units, which is more upbeat than MAA's forecast of 650,000 units.

PETALING JAYA: Vehicle sales in 2023 are expected to be sustained at record levels in the country, premised on strong reception to new launches starting with the all-new Perodua Axia 2023, a pause in the overnight policy rate (OPR) hike and the deferment of new excise duty regulations (that could result in prices of locally assembled vehicles increasing by 8% to 20%).

In a report, Kenanga Research said it has raised its 2023 total industry volume (TIV) target by 4.3% to 720,000 units (similar to TIV in 2022), which is more upbeat than the forecast of 650,000 units by the Malaysian Automotive Association (MAA).

The research unit said it believes MAA is more cautious on the industry outlook especially for the low-end segment, due to the impact of high inflation on the low-income group especially with the rising cost of basic necessities.

Kenanga Research explained that its new TIV target for 2023 is in line with Perodua’s conviction to deliver another record delivery of 314,000 units.

This is 11.3% higher compared with 2022 with significant backlogs at 220,000 units to be cleared this year, driven by new launches (Axia 2023 and two more face-lifted models) and sustained demand for its existing models (such as Alza and Bezza), while other automakers are optimistic of their new launches.“An encouraging sign to note is that the backlogs booking raced up to the tune of 350,000 units (as at end-January 2023) which is higher than 300,000 units from three months ago, indicating that deliveries have been replenished with strong new bookings especially for attractive new models, even in the absence of the sales and service tax (SST) exemption,” said the research unit.

Also, vehicle sales will be supported by launches of new battery electric vehicles which will enjoy SST exemption and other electric vehicles facilities incentives up to 2023 for CBU (completely built up) and 2025 for CKD (completely knocked down).

Kenanga Research also pointed out that the new Axia, launched on Tuesday, has attracted more than 20,000 orders.

“Perodua is expecting the new Axia to be the star of new launches this year, with a target up to 82,000 units (which if achieved, is a record delivery for a single car model in a year) – higher by 35% compared to the 2022 delivery for the outgoing Axia,” said the research unit.

The new Axia is expected to make up 25% of Perodua’s sales, above the 21% recorded in 2022, thus overtaking the Perodua Myvi as the top selling car in Malaysia.

Also, the new Axia is priced higher by between 11% and 14% at RM38,600 and RM49,000 for its bigger size and technological advancements.

“This echoes our view that all the new vehicle launches this year will be at higher prices, resulting in better margins for automotive players,” said Kenanga Research.

The research unit said it expects MBM Resources Bhd’s fourth quarter 2022 (4Q22) results, due out by next week, to come in at between RM70mil and RM80mil at the core net profit level (up 16% to 33% sequentially).

“We take our cue from Perodua’s sales in 4Q22 of 85,665 units (24% higher quarter-on-quarter) that brought 2022 sales to 282,019 units (49% higher compared with 2021) as reported by MAA and assuming net profit margin being sustained at 11%,” said Kenanga Research.

As for UMW Holdings Bhd, the research unit expects 4Q22 results, due out by the last week of February, to come in at between RM140mil and RM150mil at the core net profit level (up 50% to 60% sequentially).

“This is based on Toyota’s sales in 4Q22 of 29,909 units (21% higher quarter-on-quarter) that brought 2022 sales to 100,041 units (40% higher compared with 2021), as well as Perodua’s sales, and assuming net profit margin sustained at 3%.”

Kenanga Research’s automotive top picks are MBM Resources and UMW Holdings.

It noted that MBM Resources has a 22.58% stake in Perodua, strong earnings visibility backed by a high order backlog of Perodua vehicles, and is also the largest dealer of Perodua vehicles in Malaysia.

MBM Resources also has Tier-1 OEM (original equipment manufacturer) automotive parts manufacturing certification.

Meanwhile, UMW Holdings has the Toyota and Perodua mass-market marques under its vehicle dealership business, strong earnings visibility at its vehicle dealership business backed by order backlogs of over 250,000 units of vehicles

It is also a re-opening play, given the pick-up seen in its heavy and industrial equipment business and manufacturing of aero-engine fan cases.