Auto industry TIV to decline if MCO extended

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KUALA LUMPUR (March 25): Total industry volume (TIV) for the automotive industry in Malaysia is expected to decline if the government decides to extend the movement control order (MCO) beyond March 31.

CGS-CIMB Research stated that the implementation of the MCO resulted in most automakers temporarily discontinuing their production lines, closing showrooms and service centres.

Given the MCO’s possible extension and overall demand slowdown, the research house is revising its 2020 TIV forecast to 590,000 units, from 615,000 units previously.

“We revise down our TIV forecast for 2020F from 615,000 to 590,000, to reflect a 2.4% y-o-y (year-on-year) decline, as we project 11% and 3% y-o-y sales volume drops for the non-national marques and Perodua (Perusahaan Otomobil Kedua Sdn Bhd), respectively,” CGS-CIMB noted.

As such, it prefers exposure to auto players with strong balance sheets such as Bermaz Auto Bhd, which had RM95 million in net cash at the end of January 2020.

The recent depreciation of the ringgit is another factor, as the research house prefers auto players with relatively low foreign exchange exposure among non-national brands, such as Bermaz — which mostly sells locally-assembled completely-knocked down models

“Bermaz is supported by attractive 11.8-13.6% dividend yields for CY20-21F,” it said.

AmInvestment Bank Research also cut its 2020 TIV forecast to 520,000 units, from 610,000 units previously, after factoring in significantly slower consumer discretionary spending on big ticket items due to the current viral outbreak that has resulted in macroeconomic uncertainties.

“We expect non-national carmakers to be impacted more than national marques due to a reduced propensity to purchase pricier and more premium products in the midst of current uncertainties,” it said while noting that it was confident that Perodua and Proton Holdings Bhd will continue to underpin the auto sector in 2020 as their products are more attractive in pricing and provide better value for money.

Meanwhile, Kenanga Research highlighted that some automakers have taken the MCO as a change for periodic maintenance of their automotive plants, such as in the case of UMW Holdings Bhd.

“If there is no extension [of the MCO], we expect higher delivery of new models after April 2020, (probably in the 2H20 after the fear inflicted by Covid-19 subsides), including the face-lifted Perodua Bezza, all-new Perodua ARUZ (entry-level SUV segment), Honda HR-V facelift (includes Hybrid), all-new Toyota Vios, all-new Toyota Yaris, all-new Proton X70 CKD (with a marginal price reduction for all model ranges), face-lifted Proton Persona, Iriz, and Saga (X70 unique features), face-lifted CX-5, all-new Mazda CX-8, all-new Mazda CX-30 (launched on Jan 15, 2020), all-new Honda Civic 2020, and all-new Accord 2020 (launched on Feb 26, 2020),” the research house viewed.

AffinHwang Capital Research highlighted that February’s TIV fell by 5.3% month-on-month (m-o-m) to 40,403 units from 42,652 units in January due to lower passenger vehicle demand and fewer working days.

For the first two months of 2020 (2M20), TIV fell by 5.9% year-on-year (y-o-y) to 83,055 units due to lower passenger and commercial vehicle sales.

That said, national car marques increased its market share to 66% in 2M20, from 56% in 2M19, on the back of higher sales from Proton, whose market share rose by 8.5 percentage points to 22.3%.

Proton's greater sales were driven by demand for its Saga, Persona and Exora models.

Perodua posted a 3% y-o-y decline in 2M20, but still has the biggest chunk of the market at 43.8% market share.