This article first appeared in The Edge Financial Daily on August 6, 2018
Auto and autoparts sector
Maintain overweight: We recently hosted an Auto Day with the participation of the Malaysia Automotive Institute (MAI), an agency under the international trade and industry ministry, the Malaysian Automotive Association (MAA) and four auto players, namely Sime Darby Bhd, UMW Holdings Bhd, Bermaz Auto Bhd (BAuto) and Pecca Group Bhd. Fifty local institutional investors attended our event. We note that interest towards the sector remains positive but prospects hinge on the development of the 2018 review of the National Automotive Policy (NAP). Our sector “buy” recommendations remain for BAuto, Sime Darby, MBM Resources Bhd and Pecca.
The MAI guided that the 2018 NAP review will be based on the foundation of NAP 2014 with additional pillars, namely mobility, next-generation vehicles, artificial intelligence and Industrial Revolution 4.0.
The rollout of the policy may see some delays, as the government mulls imposing new conditions on imported cars to prioritise local brands. In our view, the tougher restrictions could potentially only target the reconditioned car market rather than locally listed foreign carmakers, as we do not expect the government’s new policy to negatively impact local assembly operations, which could then also have a detrimental impact on the entire automotive ecosystem.
The MAA has revised its 2018 total industry sales volume forecast down to 585,000 units (+1.5% year-on-year [y-o-y]) from 590,000 units (+2.3% y-o-y), expecting a short-term dip in demand post implementation of the sales and services tax (SST) in September 2018.
Sales should pick up again by year end due to the usual festive promotional activities. Besides the uncertainty over government policies and impact from the reintroduction of the SST, the MAA believes other issues like the highly saturated local auto market, lack of economies of scale and high excise duties remain dampeners on domestic auto growth.
Four of the companies shared their positive vibes on the three-month “tax holiday” boost. Sime Darby believes the SST sticker price will not deter premium car purchases moving forward. Similarly, BAuto remains bullish on its Mazda car demand, considering it is the only auto player that will absorb the SST for bookings made before Sept 1. UMW expects to see a better 2019, driven by its healthy product pipeline and extensive product offerings from Komatsu. Pecca will continue to ride on sustained growth in Perodua car sales. — Affin Hwang Capital, Aug 3