READY TO ACCELERATE
Zero-rated GST, improved consumer spending and firmer ringgit to drive TIV
MALAYSIA’s automotive industry will likely see a broad recovery in the second half on the back of zero-rated Goods and Services Tax, improved consumer sentiment and a stronger ringgit, say industry players and analysts.
THE automotive sector is set for a potentially broad recovery in the second half of the year with the zero-rated Goods and Services Tax (GST), improved consumer spending and firmer ringgit, said industry players and analysts.
Consumers were likely to take advantage of the tax-free window, which could drive up new vehicle sales, they said.
New vehicle sales eased 0.7 per cent to 182,229 units in the first four months of this year, according to Malaysian Automotive Association (MAA) data.
Bermaz Auto Bhd chief executive officer Datuk Seri Ben Yeoh Choon San said the zero-rated GST starting June 1 had triggered a reduction in prices.
“With the Hari Raya coming, there will be a rush for car purchases, which will be good for the industry,” he told NST Business yesterday.
Yeoh said the re-introduction of the Sales and Services Tax (SST) would likely cause a small hike in car prices.
However, he said consumer confidence should have been established within the interim period.
“It will have good impact on the automotive industry and retail businesses. Consumer spending will increase, especially among the middle- and lower-income group.”
MAA president Datuk Aishah Ahmad said the zero-rated GST would be a boon for the industry.
“If we assume that SST is at 10 per cent like before, then car prices will go up.”
Affin Hwang Capital said the sector could get a temporary shot in the arm in the absence of both GST and SST, as well as attractive Hari Raya promotions.
“Besides the zero-rated GST, we believe with improved confidence, a stronger middle-income segment, lower excise duties on imported cars of more than 1,600cc, a firmer ringgit and tantalising model launches will see a broad recovery of the total industry volume (TIV) in the second half.”
MIDF Research said beyond the period, some weakness could be expected before demand normalised.
The firm said the GST roll-back was expected to put more money into consumers’ pockets, structurally lifting sentiment and spending power.
“In order to avoid a vacuum in demand between now and the implementation of a zero-rated GST on June 1, key players have decided to provide some form of rebate.
“Others, meanwhile, have announced price reductions (of between five and six per cent).”
It added that the decision to absorb the GST up to June 1 was likely to have some impact on the sector’s second-quarter earnings, albeit temporary.
MIDF Research also said the stronger ringgit was a big positive for industry players, particularly UMW Holdings Bhd and Tan Chong Motor Holdings Bhd which had big import exposure to the US dollar.
“Every one per cent change in the US dollar impacts our financial year 2018 forecast by 4.7 per cent for UMW Group and 64 per cent for Tan Chong.
“As Tan Chong’s earnings are close to break-even point, its bottom line is very sensitive to foreign exchange changes.”
Affin Hwang said automotive players were adopting a variety of pricing strategies.
Distributors of Nissan, Subaru and Proton have offered a “price protection scheme” that include refunds and service vouchers to cover price fluctuations.
“Others, like Mini, Honda, Toyota and Volvo, are cutting prices. The new developments, along with Hari Raya promotions, are likely to excite buyers, leading to a temporary TIV boost,” it added.
Affin Hwang has kept its TIV growth forecast of one per cent to 582,400 units this year.
The firm reiterated its “overweight” stance on the sector.
Its top picks are Sime Darby Bhd Bermaz Auto and MBM Resources Bhd.
MIDF Research has Bermaz Auto as its top pick, followed by Tan Chong and MBM Resources.