PETALING JAYA: Backed by healthy orders, the automotive industry in Malaysia is expected to maintain a resilient performance this year. This is further supported by the easing of supply chain pressures and raw material prices.
RHB Research said earnings visibility of automotive companies this year should improve amid the favourable factors.
“With strong orders on hand and with supply chain constraints largely resolved, we think that automotive companies have earnings visibility for 2023.
“As input costs will likely remain steady from the levels seen in the fourth quarter of 2022 and gradually decline (with falling raw material costs and easing of supply tightness), the orders should translate to deliveries and into earnings,” it said in a report.
RHB Research maintained its “overweight” stance on the automotive sector. Its top picks are UMW Holdings Bhd and Bermaz Auto Bhd (BAuto). It said its automotive total industry volume (TIV) projection for 2023 remained at 680,000 units.
Data from the Malaysian Automotive Association (MAA) revealed that automotive TIV accelerated to 62,649 units in February from 49,479 in January.
“We believe March TIV will be especially high, given that the month has historically been very strong, and March will also be the final month for carmakers to deliver sales and service tax (SST)-exempt orders.
“While April TIV will likely soften month-on-month against a high base, it should nevertheless remain robust as carmakers continue to deliver on customers’ orders, which are still healthy even in the absence of the SST-exemption,” it said.
Meanwhile, Kenanga Research noted that its automotive TIV projection for 2023 was more upbeat at 720,000 units, compared to that of MAA’s 650,000 units. In 2022, Malaysia’s automotive TIV hit an all-time high of 720,658 units.
The brokerage said its 2023 projection was premised on strong reception to new models (at higher prices, resulting in better margins for auto players), a pause in the overnight policy rate hike and the deferment of new excise-duty regulations resulting in stable car prices.
“In comparison, MAA is more cautious on the industry outlook as a whole, 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 reiterated its “overweight” stance on the sector, with UMW and MBM Resources Bhd (MBMR) as its top picks.
“An encouraging sign to note is that the backlogs booking is still holding strong at 350,000 units (as at end-February 2023), indicating strong order replenishment especially for attractive new models even in the absence of SST exemption.
“Additionally, vehicle sales will be supported by new battery electric vehicles (EVs), which will enjoy SST exemption and other EV facilities incentives up to 2025 for completely-built-up units and 2027 for completely-knocked-down units,” it added.