The Auto and Autoparts sector is navigating a challenging landscape, with a recent report from RHB Stock Broking House highlighting a neutral outlook. The total industry volume (TIV) for August 2024 stood at 71,162 units, reflecting a decrease of 2.3% year-on-year, bringing the year-to-date TIV to 533,301 units, a modest increase of 5.9% compared to the previous year. Notably, the production volume for August rose by 9% year-on-year to 73,966 units. Despite this positive production trend, most major car manufacturers, including Proton, Toyota, and Honda, experienced declines in unit sales, with decreases of 10%, 17%, and 5% year-on-year, respectively. In contrast, Perodua achieved its highest monthly sales to date, reaching 34,700 units, which represented an 11.6% year-on-year increase.
The analyst remains cautious about the sector’s prospects, maintaining a NEUTRAL rating. Bermaz Auto (BAUTO) has been identified as a top pick, with RHB projecting a stable performance despite the anticipated decline in TIV. Current recommendations include two buy calls and one neutral call, alongside one sell recommendation. The sector’s performance is expected to normalise in the latter half of 2024, with forecasts indicating a TIV of 790,000 units, implying an 8% year-on-year decline in TIV for the second half of the year. This cautious outlook stems from anticipated weaker TIV numbers in September, attributed to scheduled factory maintenance shutdowns, particularly affecting Perodua, which had experienced similar disruptions earlier this year.
The strong year-to-date performance in TIV is primarily due to a surge in passenger car sales, which grew by 8% year-on-year. However, commercial vehicle sales faced a contraction of 14%, likely influenced by the removal of the diesel subsidy. As production outpaced TIV growth, the backlog of orders has begun to decline, suggesting a shift in market dynamics. The House expects this trend to continue as the industry adapts to changing consumer preferences and economic conditions.
The stocks mentioned in the report are:
Bermaz Auto: Buy, TP RM 3.05
Sime Darby: Buy, TP RM 3.10
MBM Resources: Neutral, TP RM 5.95
Tan Chong Motor: Sell, TP RM 0.65
Source: RHB
Title: Minor Speed Bump Before a Bigger Pothole
