Total sales this year expected to drop 7% to 760,000.
PETALING JAYA: Malaysia’s automotive industry faces a challenging outlook for this year, with subdued growth amid intensifying competition and uncertainty over policy.
While national brands were expected to maintain their dominance, factors such as the potential removal of the RON95 petrol subsidy and global economic headwinds may weigh on overall sector performance.
CIMB Research maintained a “neutral” rating on the sector, citing a lacklustre growth outlook.
“The sector is trading at a 9.7 times weighted-average estimated price-earnings ratio (PE) for this year, which is one standard deviation below its five-year mean PE of 12 times.
“While this valuation discount reflects the sector’s tepid earnings growth outlook and the demand uncertainty linked to the potential removal of the RON95 subsidy, the sector offers appealing dividend yields of 8.5% to 8.7% for this year,” the said in a report yesterday.
According to CIMB Research, a contraction in total industry volume (TIV) is expected next year, even as it forecast a 7% year-on-year (y-o-y) decline to 760,000 units for this year.
“We forecast a steeper reduction in TIV of 760,000 units for this year, representing a 7% y-o-y decline, primarily driven by potential headwinds such as the potential removal of the RON95 petrol subsidy in mid-2025.
“Despite this, we anticipate resilient demand within the sub-RM100,000 segment, which remains dominated by national brands and select entry-level models from Japanese marques,” the research house said.
The Malaysian Automotive Association (MAA) also projects a decline, albeit a more moderate 4.5% y-o-y drop to 780,000 units, attributing the slowdown to the normalisation of demand and a lower industry backlog. While challenges persist, several catalysts could provide some relief to the industry.
“Key catalysts for the sector are the strengthening of the ringgit against the US dollar and yen, a reduction in interest rates, and favourable government policies aimed at reviving domestic demand.
“Key downside risks to our call are the ringgit’s depreciation versus the US dollar and yen, interest rate hikes, and weaker consumer sentiment from the potential subsidy rationalisation programme and new taxes,” the research house said.
Another development affecting the sector is the government’s decision to defer the revised open market value (OMV) calculation method on duties for vehicles from January 2025 to January 2026.
“MAA also highlighted that global economic uncertainty, exacerbated by the ongoing US-China trade war, could weigh on domestic economic prospects.
“Additionally, MAA noted that the government has deferred the implementation of the revised OMV calculation method from January 2025 to January 2026.
“We view this deferment as a temporary positive for the auto sector, given that MAA estimates the new OMV calculation method could increase the average selling prices of locally assembled vehicles between 10% and 30%,” CIMB Research said.
On the policy front, the government’s plan to retain fuel subsidies for 85% of RON95 users in Budget 2025 is expected to help maintain affordability within the mass-market segment.
“Our economists also forecast a relatively stable overnight policy rate for this year. Additionally, the Malaysian government’s plan to retain fuel subsidies for 85% of RON95 users, is expected to maintain affordability for the mass-market segment.
“As a result, we expect national brands to maintain their dominance, capturing a projected 64.5% market share, compared with 35.5% for non-national brands this year,” CIMB Research said.
Meanwhile, the growing adoption of electric vehicles (EVs) is expected to continue, particularly in the event of subsidy rationalisation.
“We believe that the removal of the RON95 petrol subsidy could accelerate the adoption of EVs this year. Within our coverage, Sime Darby Bhd
is well positioned to benefit, given its expanding EV portfolio across marques like BMW, Mini, Porsche, BYD, and Volvo,” CIMB Research said.
“However, rising competition within the EV segment, particularly from Chinese players, will likely persist. Duty exemptions for imported EV models are set to expire next year, after which domestic assembly will take precedence,” the research house noted.
For this year, Sime Darby remains CIMB Research’s top sector pick, backed by its earnings-accretive acquisition of UMW Holdings Bhd and its growing presence in Australia’s mining sector.
