AUTOMOTIVE SECTOR MAY SEE EARNINGS REBOUND
Maybank IB sees 30pc jump in cumulative earnings and 3pc rise in vehicle sales
THE local automotive industry is undergoing a cyclical recovery this year despite lacklustre total industry volume (TIV) and earnings in recent years.
However, there is a possibility for the sector to see strong earnings rebound this year, boosted by the ringgit’s sustained strength against the US dollar and yen in the last three months, said Maybank Investment Bank Bhd (Maybank IB).
“We project a 30 per cent yearon-year (y-o-y) jump in cumulative earnings for net US dollar and yen importers within our auto universe for 2018,” it said in a research note.
The investment bank also expects a three per cent y-o-y rise in TIV to 610,000 units this year, backed by the ringgit’s sustained strength against US dollar and yen. The local unit was currently trading at 4.00 against the greenback and 3.54 against the yen.
“Ringgit has been able to hold its strength in the last three months of 2017, gaining 10 and six per cent against US dollar and yen, respectively. Hence, it would provide much better margins for the net US dollar and yen importers in the next three to six months.”
Maybank IB said its top picks for the sector are Bermaz Auto Bhd (BAuto) for growth, MBM Resources Bhd and Pecca Group Bhd for Perodua exposure, UMW Holdings Bhd for earnings recovery and Tan Chong Motor Holdings Bhd through price-to-book ratio valuations.
“BAuto is our top ‘buy’ for its stronger growth potential, based on volume growth from the new CX-5 model and margin recovery from a stronger ringgit against yen.
“BAuto is our first choice for a cyclical recovery in the sector, driven by both vehicle sales growth and lower imported component costs from a stronger ringgit,” said Maybank IB.
It also said Perodua continued to refresh its model line-up at the end of last year with the all-new Myvi launch.
“In terms of exposure to Perodua, we believe MBM is the largest, followed by UMW Holdings while Pecca benefits as the sole supplier of leather car seat covers to Perodua.”
Maybank IB said earnings growth would resume for UMW Holdings, helped by higher vehicle sales and margin expansion.
“We project a strong core earnings rebound in financial year 2018 to 2019. We forecast an increase of seven per cent y-o-y vehicle sales growth for UMW Holdings this year, driven by new model launches — Toyota CH-R and Harrier — in first quarter and Camry in second half.”
It expects margins recovery for UMW Holdings’ auto division from the first quarter from lower imported components costs and stronger ringgit against US dollar.