KUALA LUMPUR (March 22): Malaysia Mazda vehicle distributor Bermaz Auto Bhd remains top pick for the analyst community, after the Malaysian Automotive Association released the latest February car sales data.

In a note to investors today, CIMB Research Mohd Shanaz Noor Zam said he is maintaining his Underweight rating on the automotive sector, due to persistent weakness in consumer sentiment and margin erosion from higher operating expenditure and competition.

Nevertheless, Bermaz is still his top pick, due to the company’s attractive dividend and stronger earnings prospects.

Moreover, Mohd Shanaz also commented that the stronger year-on-year growth in February's total industry volume (TIV) was mainly due to higher demand for new models since second half of 2016, from both foreign and national carmakers.

“We estimate there were huge discounting in the month, as dealers continue to reduce their inventory of 2016 models,” he said.

“Following the stronger sales YTD, we lift our 2017 TIV growth forecast to 3% (from 2%), as we now expect 3% sales volume growth from foreign brands (previously 1%), driven by better-than-expected demand for new models. However, we cut our local brand sales volume forecast from 5% to 3%, in view of sluggish sales at Proton [Holdings Bhd],” he added.

Shanaz believes consumer sentiment would stay weak, moving forward, at least until first half of 2017.

“Hence, we believe consumers will continue to delay purchases of big-ticket items, until the later part of this year,” he said.

TA Securities Research Abel Goon, who also likes Bermaz for the similar reason, said new models such as the Honda BR-V, the all-new Mazda CX-5, expected Toyota C-HR, and a third Generation Peroduo Myvi is likely to excite the market.

However, he expects stringent hire purchase loan requirements will continue to subdue growth in TIV.

Therefore, Goon is also maintaining his Underweight stance on the automotive industry.

“We expect March’s TIV to register better numbers, as it is a longer working month. Furthermore, promotional activities from major companies have not slowed down,” he said.

Meanwhile, Goon pointed out Mazda’s TIV hit a three-year low in February, with only 460 units, fallen 40.3% from the same month last year.

“This was lower than Mercedes (900 units) and BMW (650 units), which typically register lower volumes than Mazda. That said, the weak sales volume was within expectations. Management of Bermaz had guided for weak sales in February, as there was a one week holiday observed in conjunction with Chinese New Year,” he said.