By Sherilyn Goh
Kenanga Research forecasts 2016’s total industry volume (TIV) for the automotive sector to come in at 650,000 units, as it expects the challenging operating environment due to a weak ringgit, higher advertising and promotion expenses amid fierce competition, and muted consumer sentiment in 2015 to exacerbate into the new year.
The research house also cited rising costs of living coupled with a series of subsidy rationalisation, and the higher car prices imposed by several brands starting January 2016 as factors that will further weigh on the pallid automotive sales growth.
“With consumers being more price sensitive to big-ticket items, we believe downtrading could be the key trend for consumers still opting for new vehicle purchases.
“Implication to the automotive players will be weaker sales mix (with sales) gravitating towards cheaper models. Coupled with intensifying competition in this highly saturated automotive market, we believe margin compression will continue to be seen among automotive players,” wrote Kenanga Research in its note published today.
Year -to-date November 2015, according to the Malaysia Automotive Association (MAA), a total of 597,273 units were registered in automotive sales, constituting merely 89% of MAA’s TIV estimate of 670,000 units.
Pending announcement of the December 2015 figures, Kenanga said a TIV figure of at least 70,000 units is hardly achievable, citing historical monthly TIV performance which had, at best, only hit 68,000 units, suggesting that 2015 automotive sales is more than likely to fall short of MAA’s forecast amid the current muted consumer sentiment.
The MAA had, in late July last year, revised its TIV forecast for 2015, with a 0.5% decrease from its original forecast of 680,000 units made at the beginning of 2015, to 670,000 units following weak sales performance in the first half of 2015.
The MAA is scheduled to release the 2015 full-year TIV figures on Jan 21, 2016.
Several automotive makers including Proton, Perodua, Toyota, Honda and Nissan had also respectively indicated upwards adjustments in their car prices starting from this month to buffer higher import costs of components and complete built-up models.
With this Kenanga Research is downgrading its call for the automotive sector to “underweight”. Berjaya Auto, the official distributor of Mazda cars and parts in the country, is named as its top pick for the sector.
“Berjaya Auto remains as our pick for the sector premised on better growth prospect from low base on the back of strong pipeline of exciting models, relatively stable margins, benefitting from the lower import duties from free-trade agreement with Japan, and potential dividend payout of 56%, which translate into 5.5% dividend yield.
“Moreover, we also see value emerging on current price weakness,” it said.
Berjaya Auto is trading at 10.1 times price earnings (PE), a steep 36% discount from the industry average forward PE of 15.8 times.
The research house has also previously downgraded UMW and DRB-Hicom’s ratings to “underperform”, given the downwards earnings revisions coupled with the expectations of challenging outlook in 2016. Meanwhile, it has also revised downwards the target prices for MBM Resource and Tan Chong Motor Holdings.
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