Stable outlook for auto sector on wage hike


Kenanga Research projects a total industry volume of 740,000 units in line with the forecast by the Malaysia Automotive Association.

PETALING JAYA: It is likely to be business as usual for the affordable segment of the automotive sector as the Bottom 40 group will be spared the impact of the impending fuel subsidy rationalisation, says Kenanga Research.

According to the research firm, the B40 group could potentially benefit from the introduction of the progressive wage model. The 13% pay rise for most civil servants in December 2024 will also partially restore their spending power eroded by high inflation.

However, the same cannot be said for the mid-market segment as its target customers, namely the M40 group may hold back from buying a new car upon the introduction of fuel subsidy rationalisation.

To cut their fuel bills, this group could opt for electric vehicles (EVs) or even down trade to a smaller car, giving rise to a “two-speed automotive market” in 2024, said Kenanga Research.

“For 2024, we project a total industry volume (TIV) of 740,000 units in line with the forecast of the Malaysia Automotive Association.

“We maintain our ‘neutral’ call on the sector and our sector top pick of MBM Resources Bhd, which is a good proxy to the affordable and fuel-efficient Perodua brand. It also offers an attractive dividend yield of about 7%,” it added in a report.

Touching on the recently concluded first quarter 2024 (1Q24) results, Kenanga Research said the sector’s earnings had improved sequentially with companies under its coverage either meeting or beating forecasts.

“Earnings visibility is still good, backed by a booking backlog of 200,000 units as at end-May 2024.

“More than half of the backlog is made up of new models, alluding to how appealing new models are to car buyers. This trend is likely to persist throughout 2024 given a strong line-up of new launches.”

It said vehicle sales will also be supported by new battery electric vehicles (BEV) that enjoy sales and service tax exemption and other EV facilities incentives up until 2025 for completely built units and 2027 for completely knocked down cars.

“BEV new registrations have leapt from 274 units in 2021 to over 3,400 units in 2022 and 10,159 units in 2023, with 2,703 units for year-to-date as of April 2024. This is on track to meet the national target for EVs and hybrid vehicles of 15% of TIV by 2030, and 38% of TIV by 2040.

“The government’s pledge to enable charge point operators to secure faster approvals for installation provides comfort as only 3,951 EV charging stations have been built to-date,” added the research firm.

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