Autos’ earnings set for rebound in 3Q17 onwards
KUALA LUMPUR: The automotive sector earnings looks set for a rebound from the third quarter of 2017 (3Q17) onwards, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) project, after establishing a firm trend of volume recovery.
According to MIDF Research, this is premised on a strengthening ringgit against the US dollar and Japanese yen, a more favourable macro outlook which will trickle down to consumer spend, more aggressive launches in the second half of 2017 (2H17) and stabilising loan approval rates.
MIDF Research highlighted that sector earnings recovery will be underpinned by more favourable forex which will lower import cost.
“Imported components account for 25 per cent to 35 per cent of total cost for the non-nationals,” it said. “The ringgit has strengthened from the year low of US dollar of RM4.50 to the current RM4.30 levels.”
The research arm’s in-house economics team had in fact raised its ringgit forecast to US dollar at RM4.20, with consensus forecasting a range of RM4 to RM4.30.
“Similarly, the ringgit has also strengthened against the Japanese yen to the current Japanese yen at RM3.80 levels from up to RM4.10 to RM4.20 back in 1Q17,” it added.
MIDF Research’s in-house economics team recently revised upwards its gross domestic product (GDP) forecast to 5.1 per cent, from 4.9 per cent previously.
The research arm noted that this was the second upgrade in the past six months - prior upgrade was from 4.3 per cent to 4.9 per cent.
“This is also in line with consensus which has seen a number of upgrades in the same period with the current consensus range of between five per cent and 5.3 per cent,” it said.
MIDF Research’s latest upgrade was driven by much stronger trade forecast.
It further noted that as can be seen in the past five months, exports have been growing at solid double digit rates.
“Moreover, 2Q17 registered the highest business confidence ever recorded at 4.5 per cent versus minus 6.9 per cent in the prior quarter,” the research arm said.
“The much improved macro outlook should trickle down to consumer spending, especially non-discretionary consumer spend which has seen a multi-year lull.”
MIDF Research pointed out that another key driver for sector earnings in 2H17 is a pickup in new product launches, particularly volume drivers for the key players.