RHB is Neutral On The Automotive Sector

RHB Research has maintained a “Neutral” recommendation for the Auto sector as its top pick.  The research house said on Wednesday that near-term headwinds are expected to remain in place.

It said that while the sector may present itself as an opportunity for investors wanting to position themselves for a cyclical recovery in 2022, we keep our NEUTRAL sector call at this juncture, as near-term headwinds are expected to remain.

RHB said that these include the persistent shortage of key components, which could further delay new model launches, and disruptions from COVID-19 cases amongst the workforce.

“With a mutating COVID-19 virus, we cannot rule out further rolling lockdowns ahead – which we believe will trigger downside risks as well. Other risks include the tightening of bank approvals for car loans and a sharp weakening of the ringgit,” it said.

It said that the incentives for battery electric vehicles (BEV) proposed under Budget 2022 will begin, and we expect to see continuous efforts by the Government and industry players to drive electric vehicle (EV) adoption.

It said that the short incentive period (2-4 years) and lack of a detailed automotive policy roadmap may disincentivise local manufacturers from committing to investments into EV-related production.

RHB said that it is likely to ned the year on a higher note, with FY21 likely to beat its forecast of 470,000 units which implies a 13% YoY decline (YTD Nov: 441,136 units).

It said that despite the robust FY21 performance, we leave our FY22F TIV of 540,000 units unchanged, as we expect much of the backlog to be filled in FY22, given the persisting chip shortage situation and earlier-than-expected extension of the SST exemption period.

The Research house said that SST exemption lasts until 30 Jun 2022 should compensate for the loss of sales during the full lockdown, and keep demand buoyed, coupled with the low interest rate environment amidst production bottlenecks.

RHB says that its view remains largely unchanged as it thinks the extension in SST exemptions to Jun 2022 will not be as effective as before.

“This is because consumers intending to take advantage of the discount would have already done so during the past 18 months. Beyond that, we expect TIV to taper off for a few quarters following the reimposition of the SST, before resuming growth,” the research house said.

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