Mild recovery expected for automotive sector
KUCHING: Despite the ongoing market impediments, analysts expect 2017 total industry volume ( TIV) could recover to 600,600 units (an increase of five per cent year- on- year) while consumer confidence is expected to recover towards the second half of 2017 (2H17) onwards.
The research arm of Hong Leong Investment Bank Bhd ( HLIB Research) noted that consumer confidence index reverted lower to 73.6 points in the third quarter of 2016 (3Q16) after two consecutive quarters of recovery.
“Consumers will likely defer big ticket item purchases including car and stay on with current status (continue using existing car, car-pooling or public transport) in order to limit their financial commitments.
“Furthermore, the commencement of LRT extension and MRT line in 2015 to 2017 will improve public transport connectivity and lessen consumers’ inclination to purchase car for convenience.
“Hence, the demand for new cars will likely remain lackluster at least in 1H of 2017 before a latent improvement towards the end of 2017, as consumer slowly adapts to the market apprehension,” it opined.
It also noted that the ongoing tight banks’ lending practices would likely continue to affect hire purchase approvals (especially car buyers in the lower income group) in 2017.
“Nevertheless, we recognise banks priority in targeting asset ( loan) base growth in 2017 to drive earnings growth after a distressed year of 2016,” it added.
Meanwhile, HLIB Research believed that 2017 would be another tough year for the automotive industry.
“Nevertheless, we expect 2017 TIV to be 600,600 units, a growth of five per cent y-o-y, mainly driven by new models contribution and recovery of consumer sentiments (towards 2H17).”
Original equipment manufacturers ( OEMs) with new model
Consumers will likely defer big ticket item purchases including car and stay on with current status (continue using existing car, car-pooling or public transport) in order to limit their financial commitments.
launches in 2H16 and 2017 would likely gain market share at the expense of the OEMs with lack of new volume driving models, it said.
“Proton and Toyota will enjoy full year contribution from new model launched in 2H16. Furthermore, Perodua, Proton ( potentially new SUV model) and Honda are expected to leverage on new model launches in 2017.
“Continuation of ‘ Trading Down’ effect in 2017 will provide competitive advantage to national OEMs in gaining market share as witnessed in 2014 to 2016, from 46.7 to 48.2 per cent,” the research team said.
As for the impact of the ringgit against foreign currency, HLIB Research noted that during 4Q16, market is impacted by renewed concern of ringgit depreciation due to external factors (mainly unwinding of carry trades and assets reallocation by foreign investors post US Presidential Election and expected rate hikes by FOMC).
For the past two months, it saw the ringgit depreciating against other major currencies with the yen being the only exception.
“On more concerning matters, ringgit has been depreciating substantially against US dollar and Japanese yen since early 2015. Hence OEMs will be impacted by expected higher import costs in 2017 (compared with in 2016 and 2015),” it added.
Generally, the ringgit depreciation is negative to Malaysia automotive industry, as imported inputs (raw materials, vehicle parts and components, completely knocked down-kits and completely built up units) are mainly denominated in foreign currencies.
“The industry faces deteriorating margins as OEMs absorb the higher input costs, while domestic selling prices are fixed in ringgit. OEMs tend to suffer from the inability or lagged implementation of price hikes to pass through the higher costs to consumers, especially amidst subdued consumer sentiments circumstance.
“Nevertheless, some automotive companies may benefit (or suffer) from higher forex translated profits (or losses) through their operations in foreign countries or exports,” it opined.
HLIB Research