PETALING JAYA: The automotive sector is on track for a stronger second half of financial year 2026 (2H26) as improving demand, supportive government policies and rising adoption of electrified vehicles (EVs) help sustain sales momentum.
Even so, growing competition and currency pressures are expected to keep earnings growth relatively modest, prompting a selective approach to the sector.
CIMB Research has turned more optimistic on industry vehicle sales, although it continues to advocate caution on the broader sector outlook.
The research house said: “We have raised our 2026 total industry volume (TIV) forecast by 2.6% to 800,000 units, supported by a seasonally stronger 2H26, aggressive promotions and rising EV demand.”
The revised projection follows the Malaysian Automotive Association’s increase in its TIV forecast to 800,000 units from 790,000 units, backed by stronger expectations for EV and hybrid vehicle demand.
Data showed EV sales climbed 69% year-on-year (y-o-y) to 51,782 units in 1H26, with momentum expected to continue over the remainder of the year.
“The continuation of petrol subsidies and expansion of diesel subsidies should provide support for TIV in 2H26,” CIMB Research said.
It expects 2H26 to benefit from seasonal strength, aggressive promotional campaigns and a wider pipeline of new models.
For 1H26, TIV rose 2.9% y-o-y to 385,353 units, driven mainly by stronger passenger vehicle demand, particularly for Proton.
Excluding Proton, however, TIV declined 5.7% y-o-y, reflecting persistent competitive pressures across the market.
CIMB Research said the 1H26 performance accounted for 48% of its revised full-year forecast, adding that the 2H has historically contributed about 54% of annual volumes over the past decade.
It expects demand to get further support from the continuation of the Budi95 fuel subsidy programme and the expansion of the Budi Diesel subsidy, which now includes additional allocations for eligible pickup truck and sport utility vehicle owners.
CIMB Research said Sime Darby Bhd
stands to benefit if demand for pickup trucks recovers, given its exposure to Toyota and Ford.
It also expects national automakers to strengthen their competitive position as domestic production ramps up following changes to the government’s import policy for EVs.
While competition from imported brands such as Zeekr, XPeng and Chery is expected to remain intense, CIMB Research believes manufacturers will increasingly shift towards local completely knocked-down assembly to retain competitiveness, with incentives remaining available until the end of 2027.
Despite the improved sales outlook, the research house remains cautious on earnings prospects.
It projects sector net profit to increase 6.9% y-o-y in 2026, supported mainly by stronger contributions from Sime Darby and an expected earnings recovery at Bermaz Auto Bhd (BAuto) following the launch of the new Mazda CX-5.
However, it expects MBM Resources Bhd’s earnings to weaken amid softer Perodua sales as competition from Proton intensifies.
Overall, CIMB Research maintained its “neutral” stance on the Malaysian auto sector on tepid growth. It favours BAuto and HI Mobility Bhd for sector exposure.
It added that the sector is trading at 9.8 times weighted average 2026 forecast price-to-earnings ratio, below its five-year average, while continuing to offer attractive dividend yields of 6.8% to 7.2%.
Meanwhile, one analyst noted that while demand remains supported by favourable policy measures and a broader range of vehicle offerings, the Malaysian automotive sector is entering a more competitive phase where manufacturers will need to rely on product innovation and pricing strategies to sustain growth.
“The longer-term outlook for the sector remains underpinned by the gradual shift towards EVs, although earnings performance is likely to vary across companies depending on their model mix, market positioning and ability to adapt to evolving consumer preferences,” he said.
