KUALA LUMPUR (April 20): Automotive sector analysts have projected moderate total industry volume (TIV) demand growth in 2017, underpinned by subdued consumer sentiment coupled with the weakening ringgit.

In its sector review note today, CIMB IB Research forecast TIV growth for this year to be at 3%, driven by sales recovery from both national and foreign brands following multiple new model launches since 2H16.

"We expect consumer sentiment to stay weak, at least until 2H17, given the uncertainties in the domestic economy amid currency volatility. Hence, we believe consumers will continue to delay purchases of big-ticket items until the later part of the year," said CIMB analyst Mohd Shanaz Noor Azam.

Meanwhile, Hong Leong Investment Bank (HLIB) also maintained its 2017 TIV forecast at 3.5% year-on year (y-o-y).

"We maintain 2017 TIV forecast at 600,600 units (+3.5% y-o-y), as we expect slower growth towards 2H16 due to higher base effect.

"The sector is expected to continue being undermined by the ongoing subdued consumer sentiments and weak ringgit in 2017, which has an impact on cost structure and margins. Nevertheless, we expect national original equipment manufacturers (OEMs) to sustain sales volume in 2017," said HLIB auto analyst Daniel Wong in a report today.

However, Wong has upgraded to his rating on the sector to "neutral", from "underweight", due to several recommendation upgrades for the companies under HLIB's coverage.

"However, we opine that 1Q17 earnings may remain disappointing before improving in the subsequent quarters," he explained.

In contrast, CIMB Research maintained its "underweight" sector rating due to persistent weakness in consumer sentiment and margin erosion from higher operating expenditure and intense competition.

"Key upside risks to our call are the stronger recovery in TIV and strengthening of the ringgit," said Mohd Shanaz.

In March, vehicles sales grew 10% y-o-y from 48,788 to 53,717 units, on the back of improved passenger vehicle sales from both foreign and national brands, which rose 15% and 10%, respectively.

"The growth was mainly attributable to a slew of new models launches from both foreign and national brands since 2H16. Moreover, we estimate there was huge discounting through the month as dealers continue to reduce their inventory of 2016 models," said Mohd Shanaz.

However, Wong opined that March 2017 TIV showed strong sales at 53,717 units (+10.1% y-o-y; +26.5% month-on-month), driven by new model launches, which are Perodua Axia facelift, Honda City facelift, and new Honda BR-V as well as several new Toyota models, since 4Q16.

"Year to date, TIV was at 140,839 units (+7.3% y-o-y), on the back of strong demand for the newly launched models and active promotions by the OEMs," he added.

Perodua remained the market leader with 35.7% share after selling 50,300 vehicles in 1Q17 (+6.5% y-o-y). Meanwhile, Honda continued to show impressive growth, widening its market share from 14.3% in 1Q16 to 19.4% in 1Q17, driven by new model launches such as the Honda BR-V and the 2017 Honda City facelift.

HLIB's tops picks are MBM Resources Bhd (Buy; target price (TP): RM2.75) and DRB-Hicom Bhd (Buy; TP: RM2.22), while CIMB's top pick is Bermaz Auto Bhd for its attractive dividends and strong earnings prospects.