KUALA LUMPUR: AmInvestment Bank Bhd has maintained a “neutral” call on the automobile sector on expected normalising demand amid mounting foreign exchange (forex) pressures as seen in the first quarter of 2024 (Q1’24).
It said total industry volume (TIV) is projected to stabilise to historical norms this year.
“The health of car sales remains robust in Q1 2024 with a growth of 4.4% year-on-year. This is despite the accelerated sales before the expiration of the sales and service tax exemption at end-March last year.
“While TIV in Q1 2024 is better than expected, we believe this stems from clearance of backlog orders from late-2023 and pre-Chinese New Year orders; hence, the TIV will taper down in subsequent quarters as demand normalises to historical norms,” it said in a sector update note.
Meanwhile, AmInvestment Bank has expressed a mixed outlook on the auto market on the back of new model launches in Q2’24 onwards, volatile forex and the impending fuel subsidy rationalisation.
It said there were many new models launched in Q1’24 with the majority being Chinese-made electric vehicles and a few conventional internal combustion engine models.
“There will be substantially more new model launches going forward, namely for KIA, Mazda and Peugeot.
“Some marques are expanding existing models with hybrid options (Toyota and Honda) which have proven to be popular; case in point is the Toyota Cross Hybrid version’s good take-up rate of 40%,” it said.
The investment bank said the key factor to look up to is the government’s plans to rationalise the fuel subsidy by June, as the quantum of price increase will greatly influence consumer buying patterns.
“A weak ringgit is generally bad for Malaysian autos as many components and parts are imported mainly from Thailand, Japan and South Korea, and they are typically denominated in the US dollar, South Korean won or Japanese yen.
“The auto companies normally hedge their currency positions by buying three to six months forward, assuming the swap rates are favourable,” it said.
Bermaz Auto Bhd (BAuto) and MBM Resources Bhd (MBMR) are benefitting from the weakening Japanese yen against the ringgit, while Sime Darby and Tan Chong Motors Holdings Bhd (TCM) are negatively affected by the weakening ringgit against the US dollar and Australian dollar.
AmInvestment Bank noted that the auto sector’s year-to-date 2024 performance has been mixed with an average share price gain of 4.5% together with solid gains by MBMR’s 21% and Sime Darby Bhd’s 18%.
“BAuto and DRB-Hicom Bhd are both flat and TCM is down by 16%.
“Valuations are balanced, except for BAuto which remains our sole buy,” it added. – Bernama
