KUALA LUMPUR (April 2): Affin Hwang Investment Bank Bhd expects Malaysia’s automotive total industry volume (TIV) to fall 20% to about 485,000 units from a year earlier as the Covid-19 pandemic halts car production and causes supply and demand shocks.

Affin Hwang analyst Brian Yeoh wrote in a note today the research firm’s previous 2020 TIV forecast was about 562,00 units. 

In January this year, Malaysian Automotive Association president Datuk Aishah Ahmad said 2019's TIV rose 0.95% to 604,287 vehicles from 598,598 units in 2018. 

Today, Yeoh said: "The Covid-19 crisis is wreaking havoc on the auto industry — halting production and causing supply and demand shocks. Malaysia’s auto sector is likely to remain under pressure from shrinking car sales; our economics team is warning of a recession, and many consumers are likely to defer discretionary spending. Compounding the likely demand contraction, we believe auto profit margins are also not spared from a weaker ringgit (vs. USD/JPY) and intense competition from auto players. Given the economic challenges ahead, we recently cut our sector earnings and downgraded the sector to 'underweight'.”

"Our market research indicates that most auto players have temporarily shut down operations to comply with the implementation of the Malaysian government’s Movement Control Order (MCO). We would see downside risks to auto earnings if the Covid-19 pandemic were to be prolonged.

"Our economics team recently revised its RM/USD year-end target to RM4.30/USD (previously: RM4.20/USD). In our view, depreciation of the [ringgit] will negatively impact the auto sector, especially for non-national brands, owing to higher imported raw material costs, which may be difficult to pass on to customers in a weak demand environment,” he said.

At the time of writing, the ringgit weakened to 4.3872 against the US dollar. Against the yen, the ringgit depreciated to 4.0816.