Auto sales to recover in 2H thanks to SST exemptions

KUALA LUMPUR: Analysts predict that the automobile sector’s sales will recover in the second half of 2020 (2H20) boosted by the sales and services tax (SST) exemptions.

Going into 2H20, AmInvestment Bank Bhd (AmInvestment Bank) expected a strong recovery over the next six months as the number of domestic Covid-19 new cases is easing and most businesses have resumed operations, with the considerations of the new norm.

“The government has also relaxed the movement control order (MCO), where all dealerships, showrooms and Road Transport Department outlets are now able to take in booking orders and registrations for new vehicles,” the research firm said.

“The SST exemptions have resulted in reduced car prices of 1.1 to 6.5 per cent for cars across the board for all automakers.

“We strongly believe that this is a very much needed shot in the arm for local vehicle sales, which is similar to the three-month tax holiday in June to August 2018.

AmInvestment Bank recalled that the zero-Goods and Services Tax (GST) “tax holiday” in 2018 resulted in a three to five per cent cut in car prices across the board, significantly spurring demand for new cars with a total sale of 198,500 units for that quarter. The figure was up 42 per cent quarter on quarter (q-o-q) and 32 per cent year on year (y-o-y).

“We expect a similar trend from this SST exemption over the next six months.”

AmInvestment Bank believed that certain key names under its coverage will benefit from the SST exemption stimulus more than the others.

“With Proton and Perodua’s entire line-up being locally assembled completely knocked downs (CKDs), the prices of their product offerings are even more affordable post-SST exemption.

“We strongly believe that Proton and Perodua will continue to lead the auto sector in 2H20 due to their more a ractive pricings for their line-ups and value propositions compared to their peers, such as X70 versus X-Trail or CR-V and Aruz versus BR-V.

“With that, we maintain ‘buys’ on DRB-Hicom Bhd and MBM Resources Bhd as they are proxies to Proton and Perodua’s performances in the auto sector.”

The research firm also had a ‘buy’ recommendation on Bermaz Auto Bhd (Bermaz Auto), premised on the sharp recovery of earnings from a very low base in financial year 2020 (FY20).

“Note that Bermaz Auto’s FY ending (FYE) is in April, which means that we will be able to see the impact of the SST exemption fully reflected in the group’s FY21F.

“Based on our estimates, we are expecting a 49 per cent earnings growth for the company in FY21F.”