New launches to took at for next year

“Most of the volume model launched by key players were done in 2016, while Honda’s City is only due of replacement in 2018/19,” it said.

MIDF Research noted that key new launches to look out for next year could be the Perodua MyVi which is due for a replacement, Mazda’s new CX5, and Kia Rio ( B- segment), Carnival ( MPV) and Optima ( D- segment).

The research arm further noted that Tan Chong Motor Holdings Bhd ( Tan Chong) is still not firm on when the group will start to launch new Nissan models after having frozen new launches since early 2016.

On the volat i l ity of the currency, MIDF Research opined that the weak ringgit is still a significant risk factor for autos going forward.

“The temporary strength in US dollar will raise import cost for auto players but the Japanese yen weakness seen post US elections is positive for select players,” it said.

MIDF Research highlighted that UMW Holdings Bhd’s ( UMW) imports are totally denominated in US dollar, while Tan Chong has around 85 per cent exposure to US dollar imports with the rest in Japanese yen. As for Bermaz Auto Bhd’s ( Bermaz) impor t s, the research arm said that they are denominated 100 per cent in the Japanese yen, but it is only exposed to forex via its completely bui lt up ( CBU) imports which accounts for approximately 30 per cent of sales.

The research arm pointed out that every one per cent change in Japanese yen will impact Bermaz’s financial year 2018 forecast ( FY18F) (financial year ended ( FYE) April) earnings by two per cent and Tan Chong by five per cent ( FY17F).

“Meanwhile every one per cent change in US dollar will impact UMW’s earnings by 116 per cent ( FY17F) and Tan Chong’s earnings by 21 per cent ( FY17F),” it added.

“The extreme sensitivity for Tan Chong and UMW is due to the fact that both companies are close to break- even in terms of profitability, which results in pronounced f luctuations to bottomline from any changes in variables.”

MIDF Research did not rule out further price hikes by players to offset the impact of forex volatility.

The research arm noted that Bermaz for one, did not participate in the price hikes in early 2016 as it had previously hedged its Japanese yen exposure at around RM3.60: Japanese yen.

“However, these were exhausted in April 2016 and Japanese yen at current elevated levels are not worth hedging,” the research arm said.

“As such, management is looking to raise pricing for Mazda models across the board next year though the quantum is still uncertain at this juncture.”

It added that earlier in the year, peers like Toyota and Honda raised pricing by three per cent to seven per cent while Proton raised pricing by around five per cent.

Overal l, MIDF Research maintained ‘ neutral’ on autos, with Bermaz Auto remaining as the research arm’s top sector pick.

On the other hand, TA Research maintained its ‘ underweight’ stance on the industry and TIV forecast of 570,000 units.

“This is given the lack of near- term re- rating catalysts for the sector,” the research arm said. “In addit ion, stringent hire purchase loan requirements and cautious consumer sentiment continues to subdue TIV.”

It added that on a brighter note, year- end discounts should boost the current weak trend in TIV numbers.