Toyota’s subsidiary, Daihatsu, recently admitted that it had rigged the safety tests for four models, including the Toyota Vios and Perodua Axia.
Over the weekend, both brands confirmed that the Vios and Axia are not affected by this issue, and comply with safety standards.
Deliveries will resume, and there is no need for vehicle recalls.
“Given the brands’ encouraging and prompt assurance, we think this incident will not materially impact UMW and MBM’s earnings and share price,” said RHB Research (RHB) in the recent Malaysia Sector Update Report.
Daihatsu admitted to rigging door-safety tests by adding a safety notch to test vehicles. This affects the regulatory approval applications for four models, including the recently launched Perodua Axia and Toyota Vios.
According to Reuters, this means the door interior could break with a sharp edge and cause injury to an occupant when the side airbag is deployed in an accident. On Friday, shipments of affected vehicles were suspended pending further updates.
Over the long weekend, both Perodua and UMW Toyota confirmed that the Axia and Vios are not affected by Daihatsu’s rigged safety tests. The companies said the units produced and delivered all meet the necessary safety standards. The delivery of both models will be resumed, with no need for any recalls.
“Based on our checks with dealers on Sunday, there were no customer cancellations. With the brands’ prompt reassurance of the vehicles’ safety, we think the number of order cancellations will be insignificant. We also highlight that in the Axia and Vios price segments, there are not many alternatives. The closest alternatives for the Vios and Axia are the Honda City and Proton Iriz,” said RHB.
Should there be any fines for the rigged safety tests, we suspect that such fines will be incurred by Daihatsu. In the unlikely event of vehicle recalls, the principals such as Toyota, Daihatsu and Perodua, will bear the costs.
UMW and MBM should not see any earnings impact from this incident, given the resumption of deliveries, and based on RHB’s assumption of minimal order cancellations.
According to RHB, Bauto benefits from continued growth in volumes across its Mazda, Kia, and Peugeot brands. It also offers an attractive financial year 2024 future yield of 9%.
UMW, despite near-term concerns, should continue to deliver strong earnings, largely boosted by demand for the newly launched Axia and Vios. Its aerospace segment continues to improve along with demand for air travel. It also offers a decent dividend yield of 4%. Key risks identified by RHB include softer-than-expected orders and deliveries, and resurgent supply chain issues.
