KUALA LUMPUR (Jan 3): Hong Leong Investment Bank Bhd has maintained its "Overweight" call on the automotive sector with DRB-Hicom Bhd, MBM Resources Bhd and Sime Darby Bhd as its top picks.

In a note today, HLIB said the 2020 total industry volume (TIV) will continue to be challenged by moderating consumer sentiment.

It also expects original equipment manufacturers (OEMs) with the advantage of new models to have higher chances to grab market share in 2020 at the expense of others.

For the cumulative 11 months of 2019 (11M19), the TIV registered a slight drop of 0.2% y-o-y due to the high base effect of strong sales during the June to August 2018 tax free period.

For 2020, HLIB forecast TIV of 605,000 units, mainly driven by sustainable sales volume of national OEM such as Proton and Perodua as well as Honda, following the excitement of expected new model launches next year.

"We see slight upside potential to our 2019 conservative TIV of 596,600 units to 604,700 units, as we expect encouraging monthly sales volume in December 2019, supported by continued strong demand for new model launches by Proton, Perodua and Toyota," it said.

The research house expects the ringgit to depreciate further against the US dollar to average at 4.15 to 4.20 level in 2020 as compared to the average of 4.14 in 2019. Bloomberg forecasts the ringgit to depreciate against the Japanese yen to average at 3,900 to 3,950 level in 2020, from the current 3,800 level.

"Weakened ringgit will increase the effective input costs for imported complete built-up (CBU) cars, complete knocked-down (CKD) packs and raw materials, and subsequently affect OEMs' margins," HLIB said.

OEMs that have major exposure towards US dollar include Toyota (UMW Holdings Bhd) and Nissan (Tan Chong Motor Holdings Bhd), while those with exposure to Japanese yen include Honda (DRB-Hicom) and Mazda (Bermaz Auto Bhd).