KUALA LUMPUR (March 25): Analysts expect auto sales volume to improve from March onwards, driven by the extended sales and services tax (SST) exemption and new models launch.

Malaysian Automotive Association (MAA) reported that total industry volume (TIV) in February rose 30% month-on-month to 42,784 due to improving traffic volume after the lifting of the movement control order (MCO) in eight states and the easing of economic activity restrictions.

CGS-CIMB’s analyst Mohd Shanaz Noor Azam said in a note today that the stronger TIV on Feb 21 was mainly driven by robust demand from the sports utility vehicle (SUV) and passenger car segments, which recorded 98% and 19% month-on-month sales volume growth respectively.

“We expect higher TIV delivery from March 2021 onwards, driven by the ongoing sales tax holiday and numerous new model launches,” he said, adding that the resumption in economic activities, supported by the country’s Covid-19 vaccination programme that began in February, will also boost the sentiment.

He said he still projected 2021 TIV rose 10% year-on-year (y-o-y) to 580,000 units on the back of higher sales at Proton (up 20% y-o-y) and Perodua (up 13% y-o-y), driven by multiple new launches.

“We gather that demand for Proton X50 and X70 remains strong, with Proton’s management indicating during DRB-Hicom Bhd’s post 4Q20 results briefing that these models have order backlogs of about three to four months.

“Meanwhile, we learnt that Perodua has received over 8,000 bookings for its recently-launched Ativa SUV. Overall, we believe these positive developments will help support TIV growth in 2Q21 and beyond,” he added.

He thinks the sector remains on track for an earnings recovery in 2021, and projected a net profit growth of 40% for the sector, versus a contraction of 26% in 2020.

“The sector trades at 13.8 times 2021 price to earnings, which is broadly in line with our target sector price to earnings of 14 times. We retain our 'neutral' rating on the Malaysian auto sector, with DRB-Hicom and UMW Holdings Bhd as our preferred pick,” he said.

Meanwhile, Hong Leong Investment Bank Research’s analyst Daniel Wong said he maintained his 2021 TIV expectation at 585,400 units (up 10.6% y-o-y), as he expects continued sales growth till June 2021, driven by the extended SST exemption measures to June 30, and the various new exciting models.

“We reaffirm our 'overweight' call on the automotive sector with a selective stock approach (national marque bias) in view of the recovery in 2021,” he said.

His top picks are MBM Resources Bhd (buy; target price: RM5.70), DRB-Hicom (buy; TP: RM2.77) and Sime Darby Bhd (buy; TP: RM2.68).

MIDF Research’s analyst Hafriz Hezry also maintained his positive view on the auto sector, as he sees the extension of tax holiday, accommodative stance on operability of economic sectors, low interest rates and a relatively stronger ringgit will strengthen sector earnings recovery.

According to him, February TIV was a healthy recovery against an exceptionally weak January, which was impacted by shortage of inventories following strong 4Q20 sales, local parts supply shortage due to temporary closure of vendors during the early part of MCO 2.0 and global chip shortage issue.

He, however, leaves his 2021 TIV of 550,000 units (up 4% y-o-y) unchanged at this juncture with potential upside. The forecast is conservative as compared to MAA’s projected yearly growth of 8%.

“Year-to-date, TIV is down 10% to 75,621 units, but March to April numbers should improve further on removal of the 10-km movement restrictions, full operations of the Road Transport Department and pre-Raya purchasing,” he said.

More importantly, he noted, March to April TIV will come off an exceptionally weak base in the same period last year (with only 165 units sales in April 2020), which was severely impacted by MCO 1.0.

“Despite the temporary supply constraint, demand remains strong with one to three months’ worth of booking bank on average, backed by the extended tax holiday,” he said.

His top sector picks are UMW (buy, TP: RM4.30), MBM (buy, TP: RM4.20) and Bermaz Auto Bhd (buy, TP: 1.70).