Muted outlook for auto industry on limited catalysts

UOBKH Research expects BAuto’s revenue and earnings to grow by 12.8% and 2.4% y-o-y respectively, assuming it achieves record-high sales in FY24.

PETALING JAYA: The auto sector’s total industry volume is expected to slump by 21% year-on-year to 660,000 units in 2024, says UOB Kay Hian (UOBKH) Research, as the sector’s catalysts are limited with the exception of the ongoing debut of new models and brands.

“This, coupled with the lingering worries of fuel subsidy rationalisation, sales and service tax rate hike and the new luxury tax, is expected to have a negative impact on consumer demand upfront,” the research house stated in a report.

UOBKH Research anticipates Bermaz Auto Bhd (BAuto) to hit a record-high earnings and revenue for the financial year ended April 30, 2024 (FY24), as well as earnings accretion for Sime Darby Bhd from the UMW Holdings acquisition in its nine months of FY24 (9M24) ended March 31, 2024.

For BAuto’s fourth quarter (4Q24), UOBKH Research expects the group’s earnings to decline between 11% and 50% year-on-year (y-o-y) due to the high-base effect in 4Q23.

On a brighter note, the research house expects BAuto’s revenue and earnings to grow by 12.8% and 2.4% y-o-y respectively, assuming it achieves record-high sales in FY24.

UOBKH Research added another impetus could come from the “lush” dividend payout for FY24, as BAuto had declared a total dividend of 14.25 sen per share for 9M24.

“We assume the group will reward its shareholders with another special dividend of 7.75 sen per share, with a total expected dividend payout of 22 sen per share. Including the special dividend, this translates to a dividend yield of 9% for FY24,” it stated.

Meanwhile, Sime Darby’s second half (2H24) earnings are expected to jump between 70% and 102% y-o-y from UMW’s contribution which is estimated to be RM289mil.

“Its motors profit before interest and tax margin in 1H24 still experiences lower margin caused by the price war, and this issue is not expected to dissipate in the near term as mentioned by the group during the last briefing,” it said.

Nonetheless, the research house expects a gradual improvement for Sime Darby in the upcoming FY25 and FY26.

UOBKH Research also expects Sime Darby to offer a dividend of 13 sen per share, translating into a 4.6% yield in FY24.

“Despite its higher gross gearing ratio of 0.67 times due to the multiple acquisitions made in FY23, we reckon that the baseline assumption of dividend payout is reasonable and decent,” UOBKH Research added.

On that note, it maintained a “market weight” call on the auto sector, with a valuation traded at nine times the 2024 forecast price to earnings.

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