Thursday 28 Mar 2024
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KUALA LUMPUR (Jan 27): MIDF Research has reaffirmed its "positive" call on automotive industry underpinned by a strong total industry volume (TIV) recovery driven by the tax holiday extension, a low interest rate environment, a shift to private car usage from mass transport on concerns over social distancing and an underlying macro recovery.

In a note today, the research house said the automotive industry made a strong end to 2020 with a 26% year-on-year growth and a 22% month-over-month increase to December’s TIV of 68,836 units, which nears a record monthly high.

“The strong December TIV was driven by year-end sales campaigns and more importantly, as consumers rushed to benefit from the tax holiday which was earlier scheduled to end on Dec 31, 2020,” said the research house.

MIDF also noted that TIV for the year 2020 came in at 529,434 units, slightly ahead of even MIDF’s aggressive FY20F of 523,000 units and the Malaysian Automotive Association's (MAA) FY20F TIV of 470,000, driven mainly by extremely positive consumer reaction towards tax holiday incentive since June 2020.

According to MIDF, despite the strict lockdowns in March to April 2020, FY20 TIV only fell by 12% year-on-year, significantly narrower compared to the 41% year-on-year contraction seen during the first half of 2020 (1H20).

Moreover, during the fourth quarter of 2020 (4Q20), non-national cars made a comeback following aggressive launches such as the new Almera (launched in November 2020), new City (launched in October 2020) as well as the all-new Hyundai Kona and Mitsubishi Xpander.

“While the national cars drove most of the recovery throughout June-November 2020, non-nationals staged a strong rebound in December, up by 22% year-on-year and increasing its share to 45% of TIV (relative to 2H20 average non-national market share of 37%),” said MIDF.

MIDF stressed that it kept its conservative FY21F TIV of 550,000 (+4% year-on-year) unchanged with potential upside than downside at this point, especially considering that second movement control order (MCO 2.0) is more accommodative to the economy, allowing a large pool of sectors to operate unlike the previous one, followed by a sustained low interest rate environment as well as the visibility of a vaccine rollout this time around.

“As a result of the global chip shortage situation currently, we see rising concern on the potential impact on auto production. Recent newsflows suggest that selective players such as Proton might be looking to scale down production, but we would bear in mind that for Proton’s Geely-based SUV models (X70 and X50), localization rate is still low at around 40%, suggesting it is still very reliant on the Chinese automotive supply chain which is hit hard by the chip shortage issue,” MIDF noted.  

“While the impact may not be uniform across the board, e.g. our channel checks with selective non-national players recently suggest production is still operating as per normal without any supply constraint so far, we remain cautious should the impact of the chip shortage catch up with production here,” it added. 

MIDF shared that its top sector picks are Bermaz Auto Bhd (BAuto) and MBM Resources Bhd.

It has a "buy" call and target price of RM1.70 for BAuto as MIDF believes the auto company is a play into a potential brand expansion leading to structural market share growth. 

Having recently acquired franchise rights for the Peugeot brand, MIDF said BAuto is eyeing another mass market brand in the near future, positioned mainly to plug gaps in the lower price points in its model mix.

MIDF also recommends a "buy" for MBM with a target price of RM3.90 as the local research house believes the auto company is a “cheap proxy” to an expected strong recovery in Perodua earnings.

Edited ByJoyce Goh
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