RHB Research has a “Neutral recommendation for the Automotive sector with its top picks being Sime Darby and Bermaz Auto.
It said that while an extension of the SST holiday could bode well for car demand, it was cautious on near-term headwinds, which include; strengthening USD/MYR rate, which may adversely impact UMW’s and TCM’s margins, costlier car components, which may pressure margins, and softer consumer appetite due to inflationary pressures
RHB said that from post-results briefings, it gathers that customers in 1Q22 continued to place their orders to qualify for the SST exemption.
Interestingly, it said that they continued placing orders in April/May, when most orders likely would not have qualified for the exemption – since buyers would only receive their vehicles after June.
RHB said that BAUTO took advantage of the last-minute scramble for orders and offered to absorb customers’ SST if they placed their orders before 31 May.
“As a result, it currently has a record long backlog of orders lasting 5-6 months. Backlog orders across the board are still very long, namely four months (on average) for UMW, five months for Perodua, “it said.
On Sime Darby and Bermaz Auto, it said that sector 1Q22 results were mixed – two players beat estimates, one was in line, and two missed forecasts. The Sales & Service Tax (SST) exemption continued to fuel orders, while supply remained tight.
It said that it has upgraded calls on SIME (on China’s economic recovery) and BAUTO (attractive valuation, and resilience against inflationary pressures). All eyes are now on whether the tax holiday will be extended – if this happens, we may revisit our 2022 TIV forecast.
