PETALING JAYA: Automakers are already working around the discounting competition in the local automotive industry by focusing on other more profitable segments, a strategy that could help cushion margins as price wars intensify in the automotive industry.
According to Kenanga Research, manufacturers and distributors are increasingly shifting attention towards higher-margin businesses, including premium motorcycles, completely built-up (CBU) vehicles and industrial operations – even as discounts and rebates become a key tool for capturing market share.
The research house maintained a “neutral” call on the automotive sector.
It noted that first-quarter 2026 earnings were largely in line with expectations, despite a seasonally weaker quarter caused by plant shutdowns, particularly among Perodua-linked companies, and the earlier timing of festive holidays compared with the previous year.
Kenanga Research said 43% of the companies under its coverage exceeded expectations while the remaining 57% met forecasts, with none missing estimates.
Moving forward, the research house expects Malaysia’s total industry volume (TIV) to reach 790,000 units in 2026, representing a 4% year-on-year decline and broadly matching the forecast by the Malaysian Automotive Association.
It said several factors would shape the market this year, including aggressive discounting campaigns, the gradual implementation of the new open market value (OMV) excise duty framework from July, growing competition from localised China vehicle brands, and a steady pipeline of new model launches.
“The new trend of discounts / rebates is a strategy to gain a headstart in capturing market share, coming likely at the expense of margins,” the research house said.
Among the companies that were working around this are likely: Sime Darby Bhd
(which is leveraging its higher-margin industrial division), Bermaz Auto Bhd (focusing on CBU models unaffected by the OMV policy), and Hong Leong Industries Bhd (which continues to benefit from the demand for premium motorcycles).
Kenanga Research also highlighted the increasing presence of China automotive brands through local assembly programmes, supported by tax incentives for locally assembled electric vehicles (EV) that remain in place until 2027.
Earnings visibility remains favourable and is underpinned by an industry booking backlog of about 162,000 vehicles as at end-May 2026, significantly above the average 140,000-unit backlog recorded in 2025, the research house further noted.
More than half of the backlog consists of newly launched models, reflecting strong consumer appetite for fresh offerings, it said.
Meanwhile on EVs, Kenanga Research expects adoption to continue rising – but at a gradual pace.
It added that battery EV registrations climbed to 44,800 units in 2025, equivalent to 5.5% of TIV, while sales in the first four months of 2026 had already reached 20,254 units.
However, infrastructure limitations and the government’s revised fuel subsidy mechanism could slow the pace of consumer migration from internal combustion engine vehicles to EVs over the next several years, it pointed out.
Kenanga Research’s preferred sector picks are Bermaz Auto and Hong Leong Industries, noting their stronger earnings visibility, resilience to OMV-related pricing risks, and dividend yields of about 6% to 7%.
