Consumers continue to limit spending on big-ticket items
KUCHING: Analysts believe that for 2017, consumers may continue to limit spending on big-ticket items in the automotive sector due to the higher cost of living.
The research arm of Kenanga Investment Bank Bhd ( Kenanga Research) viewed that the unfavourable forex is still an issue for automakers, squeezing their profit margins with higher operating costs.
With this, Kenanga Research gathered there is lack of rerating catalysts to bring about any significant shift in the sector.
“That being said, TIV sales numbers going forward are likely to be driven by the spill-over of new models launches from the second half of last year, supported by a small number of launches this year, such as the face-lifted Perodua Axia, Perodua Bezza, the new Proton Saga, the new Proton Persona, Proton Ertiga, the new Honda Civic, the facelifted Toyota Vios, the new Toyota Innova, the new Toyota Corrolla Altis, the new Honda BRV and face-lifted Honda City,” it noted.
“Forthcoming model launches are the Honda Jazz Hybrid, Honda CR-V, the new Toyota CH-R, Toyota Hilux 2.4G Limited Edition and face-lifted Toyota Camry.”
The research arm thus kept its 2017 total industry volume (TIV) forecast unchanged at 590,000.
Kenanga Research maintained its ‘underweight’ rating on the automotive sector given the outweighing of ‘ underperform’ ratings in the total market capitalisation of the research arm’s stock coverage coupled with the lack of re-rating catalyst for 2017.
On the preferred pick for the automotive sector, Kenanga Research chose Bermaz Auto Bhd (Bermaz Auto).
“Though we expect softer earnings prospect in view of its lower- than expected unit sales and high exposure to the Japanese Yen which has been trailing at high levels over the past several months, we believe Bermaz Auto may be a safer bet given that its targeted customer base in the middle-income to highincome bracket are less sensitive to the rising cost of living,” the research arms aid.
All in all, Kenanga Research believed Bermaz Auto’s investment merits were supported by high potential value to be unlocked with the proposed listing of the group’s Philippines subsidiary where robust growth in its automotive market is anticipated, potential dividend pay-out of circa 90 per cent, which translate into fair dividend yield of circa 7.4 per cent and increase of average selling price circa four per cent for Mazda 2017 variants.