PETALING JAYA: Automotive sales momentum is expected to be sustained as forward-buying interest, ahead of regulatory changes, supports demand, says Kenanga Research.
Vehicle sales rebounded to 75,992 units in October from 58,490 units in September, lifting year-to-date sales to 655,328 units as of end-October.
Kenanga Research has maintained a “neutral” rating on the sector and projects total industry volume (TIV) of 805,000 units in 2025, representing a 1.4% year-on-year decline from the record 816,747 units registered in 2024.
The research house said demand in the mass-market segment remained resilient, underpinned by affordable models and improved policy clarity, even as the industry prepares for regulatory changes next year.
It expected forward-buying activity to continue ahead of the implementation of new excise duty rules under the open market value (OMV) framework from 2026, as well as the discontinuation of incentives for fully imported completely built-up (CBU) electric vehicles (EVs) in the same year.
“Our 2025 TIV forecast of 805,000 units is a tad above the forecast of 780,000 by the Malaysian Automotive Association, backed by strong sustained demand in the affordable segment, fuel subsidies, attractive new launches and forward buying interest on pre-OMV excise duty hike and pre-discontinued EV CBU incentives both in 2026,” it said.
It noted that the decision to expand fuel subsidies to Malaysians – instead of income-based targeting – has reduced uncertainty in the mid-market segment, although pricing pressure remains intense due to competition from value-for-money Chinese models.
Kenanga Research also expected Perusahaan Otomobil Kedua Sdn Bhd (Perodua) to be the main beneficiary of the policy shifts, as higher excise duties could be partly offset by its higher localisation rate.
Beyond policy factors, the research house said demand is expected to remain supported by improving household incomes, including higher salaries for government servants effective last December, increase in the minimum wage from February and a stable labour market, with the unemployment rate forecast at 3% in 2025 compared with 3.3% in 2024.
On electrification, Kenanga Research said EV adoption would be gradual, citing infrastructure constraints and policy developments.
“We expect gradual transition to EVs which currently enjoy the sales and service tax exemption and other incentives until 2025 for imported CBUs and 2027 for locally-assembled completely knocked-downs.
“EV adoption will eventually pick up and petrol demand will peak but we do not think that will happen in the next five years due to infrastructure challenges.”
With EVs targeted to account for 20% of new vehicle sales by 2030, Kenanga Research said the new petrol subsidy mechanism could slow the shift away from internal combustion engine vehicles particularly among the middle and lower-income consumers.
It highlighted gaps in charging infrastructure, noting that while more than 5,000 charging stations had been built, high installation costs and lengthy approval processes remained key challenges in achieving the 10,000-charger target nationwide by end-2025.
Meanwhile, Kenanga Research said the automotive sector saw an earnings recovery following a softer first half of financial year 2025.
It said that during the third quarter of 2025, 14% of the companies under its coverage delivered results above expectations, 57% were in line, while 29% came in below estimates.
Kenanga Research named MBM Resources Bhd
and Hong Leong Industries Bhd as its top sector picks.
For MBM Resources, the research house cited strong earnings visibility supported by an outstanding Perodua order backlog of more than 89,000 units, exposure to the mass-market Perodua brand, and an attractive dividend yield of about 7%.
It also expected MBM Resources to benefit from new Perodua launches with higher margins, dealership expansion via the Jaecoo brand, and a down-trading trend favouring affordable vehicles.
Hong Leong Industries is favoured for its exposure to the gig economy through two-wheelers, its association with the Yamaha brand – which holds a leading position locally – and its strong balance sheet, with net cash of about RM2bil.
Kenanga Research highlighted Hong Leong Industries’ dividend yield of 6%, and forecast robust motorcycle demand, with industry volume projected to reach a record 700,000 units in 2026, led by Yamaha with more than 50% market share.
