PETALING JAYA: Kenanga Research has maintained a “neutral” rating on Malaysia’s automotive sector, expecting vehicle sales to moderate this year as intense price competition, evolving regulations and an influx of localised Chinese marques weigh on margins, although demand should remain supported by replacement purchases and new model launches.
The research house forecasts total industry volume (TIV) at 790,000 units in 2026, down 4% from a year earlier and in line with the Malaysian Automotive Association’s projection.
It continues to recommend Bermaz Auto Bhd
(BAuto) and Sime Darby Bhd as its top sector picks.
Rather than dampening demand, Kenanga Research believes Malaysia’s fuel subsidy mechanism should continue to shield consumers from swings in global oil prices despite lingering geopolitical tensions in the Middle East.
“Fuel prices are still subject to the ongoing Middle East uncertainties but are expected to have minimal impact on the vehicles sales volumes, as the Malaysian market is still protected by fuel subsidies and replacement cycles for electric vehicles (EVs), hybrids as well as motorcycles.”
It expects competition to remain intense as carmakers continue to offer rebates and discounts to attract buyers, although such promotional activity is likely to come at the expense of profit margins.
The research house also sees national marques retaining their dominant position in the affordable segment, while demand should be supported by a stable labour market, more consumer-friendly hire-purchase financing rules and a pipeline of new vehicle launches.
Kenanga Research said the government’s latest EV policies are aimed at encouraging global automakers to establish manufacturing operations in Malaysia instead of relying on imported vehicles.
“By cutting off cheap imports, the government is deliberately creating a protected domestic sandbox to pressure global automakers into building local supply chains,” it said.
The research house also expects companies with established local assembly capabilities, including Proton Holdings Bhd, Perusahaan Otomobil Kedua Sdn Bhd (Perodua), Sime Darby, DRB-Hicom Bhd, Tan Chong Motor Holdings Bhd and EP Manufacturing Bhd, to benefit as more manufacturers localise production.
The brokerage remains constructive on the sector’s earnings outlook, noting that order books remain healthy despite expectations for slower industry sales.
“In general, the industry’s earnings visibility is still good, backed by a booking backlog of 162,000 units as at end-May 2026,” it said.
According to the brokerage, more than half of the outstanding bookings comprise newly launched models, underscoring continued consumer interest in fresh offerings.
Among its preferred stocks, Kenanga Research said BAuto is well positioned due to its premium Mazda franchise, healthy order backlog and attractive dividend yield.
“We expect BAuto to benefit from the recent weakening of the Japanese yen against ringgit, more so, as it expands its new Mazda launches towards completely built up models,” it said.
For Sime Darby, the research house sees further upside from its dominant regional automotive presence and the strong outlook for its industrial division, which it expects to benefit from sustained investment by mining customers over the next several years.
“We expect significant investment by its industrial clients for the next five years translating into a potential industrials segment double-digit growth for both sales and margin,” said the brokerage.
Another analyst, however, expects TIV to decline by around 5% in 2026 after several years of exceptionally strong demand, as the market normalises with consumers becoming more selective amid higher living costs.
“However, we do not see a sharp downturn. The market remains supported by resilient employment, stable interest rates, continued replacement demand, and the rapid expansion of competitively priced Chinese brands, which are broadening the addressable market rather than merely cannibalising incumbent players,” the analyst told StarBiz.
He listed MBM Resources Bhd as a choice stock, citing that the counter offers a combination of defensive earnings, strong cash generation and attractive dividends through its significant exposure to Perodua, the country’s dominant mass-market automaker.
“Overall, we favour companies with diversified earnings streams, dominant market positions or structural competitive advantages over those relying primarily on cyclical volume growth,” he said.
