Analysts believe that petrol subsidy rationalisation and e-invoicing in 2HCY24 will weigh down on the overall vehicle sales but it will be business as usual for the affordable segment.
The target customers for the affordable segment are mostly from the B40 group who will be spared the impact of the impending fuel subsidy rationalisation and also could potentially benefit from the introduction of the progressive wage model.
The pay rise for most civil servants in December 2024 will partially restore their spending power eroded by high inflation. Top management to receive a 7% rise and those in professional and executive roles to see a rise of 15%.
Fuel subsidy rationalisation will likely hurt the demand for mid-market models, according to Kenanga who has awarded a NEUTRAL rating for the sector.
In view of the unfavorable operating environment, CY24 forecast of new vehicle sales in Malaysia (Total Industry Volume, TIV) stands at 740k units (-8%), more conservative than the 765k units projected by Malaysia Automotive Association (MAA).
The sector’s earnings delivery saw a deterioration in the recently concluded 2QCY24 reporting season as DRB-HICOM Bhd (DRBHCOM) and Tan Chong Motor Holdings Bhd (TCHONG) recorded quarterly losses.
DRBHCOM with a target price of RM1.30 saw its core net profit almost halved YoY as dragged by its 2QFY24 net losses caused by losses in its postal segment as well as longer closure of auto parts manufacturing plant on extended festive holidays.
TCHONG reported wider losses than the analysts’ forecast as the sales volume of its bread-and-butter Nissan vehicles continued to fall as competitors flooded the market with new models.
The sector’s top pick is MBM Resources Bhd (MBMR) with a target price of RM6.30 that offers an attractive dividend yield of about 7%.
Hong Leong Industries Bhd (HLIND) with a target price of RM13.50 beat the analysts’ forecast largely due to strong motorcycle sales on credit easing by financiers.
Bermaz Auto Bhd (BAUTO) with a target price of RM2.45 met the expectations despite plunging 30% YoY as the sales volumes of Mazda and Kia vehicles fell on intense competition from Chinese-made vehicles.
Sime Darby Bhd (SIME) with a target price of RM2.90 was buoyed by strong profits from its industrial and automotive segments, coupled with the consolidation of earnings from the newly acquired UMW Holdings Bhd.
