‘OVERWEIGHT’ ON AUTOMOTIVE SECTOR
Analysts expect earnings to recover amid revenue growth and strengthening ringgit
SOME analysts are “overweight” on the local automotive sector, with MBM Resources Bhd and Berjaya Auto Bhd their top picks despite the expected listless period post-Sales and Service Tax implementation on September 1.
They expect the sector’s earnings to recover amid top-line growth and sustained ringgit strength. This is also despite a plunge in car sales last month.
“We think the drop is temporary (for national cars) and expect Perodua’s production glitches to be addressed by year-end. As for Proton Holdings Bhd, the flagship X70 sport utility vehicle (SUV) should drive future sales,” said Affin Hwang Capital.
It has placed an “overweight” rating on the sector, premised on better earnings outlook.
The research firm said non-national cars had 52 per cent of market share in the first nine months despite sales dropping 22 per cent year-on-year to 17,300 units last month.
Affin Hwang favours players with growing market share, namely BMW dealer Sime Darby Bhd, Mazda dealer Berjaya Auto and Perodua dealer MBM Resources.
MIDF Research said most automotive players had already or were close to hitting full-year targets, suggesting little reason to embark on the typical year-end sales campaigns.
However, the firm expects the market to dry up in the fourth quarter before normalising in the next quarter.
MIDF Research remained positive on the sector, with Berjaya Auto its top pick on ringgit strengthening against the yen and more than double associate earnings contribution due to export market expansion into Southeast Asia (ex-Vietnam) markets, re-acceleration in production for the domestic market as well as an attractive dividend yield.
It placed “buy” calls on MBM Resources, UMW Holdings Bhd and Tan Chong Motor Holdings Bhd.
In the Malaysian Institute of Economic Research’s (MIER) survey report for the third quarter of this year, the think tank said a higher level of disposable income as a result of the abolishment of the Goods and Services Tax, among other things, would support the demand for cars.
“It would be reasonable to have a projection of two to three per cent total industry volume growth this year, premised on stronger sales in the second half of the year, led by better clarity on the policies affecting car prices and a number of key launches slated for that period,” said MIER.
On the 2019 Budget, MIER said any proposal that would boost consumer sentiment and improve Malaysians’ disposable income would support car sales in the future.
Kenanga Research has MBM Resources as its top pick for the sector. This is due to the company’s deep value stake in 22.58 per cent-owned Perodua worth RM1.4 billion and the expected strong turnaround in the alloywheel division segment, underpinned by the all-new MyVi and expected launch of the all-new Perodua SUV.