Carmakers: Revving up for an evolution

Times are exciting for autoplayers in Malaysia. In spite of subdued consumer sentiment, stringent lending guidelines and the weak ringgit this year, carmakers are on the cusp of corporate change that will evolve the sector.

High on the list of said change is the newly-formed strategic partnership between DRB-Hicom Bhd (DRB-Hicom) and Zhejiang Geely Holding Group Co for the China-based latter to own 49.9 per cent in Proton.

This was the much-needed economic solution to rescue Proton out of its financial mess created by a business model that was unsustainable in its early years.

It would not only bring about good business opportunities for both companies, but contribute to the revival of the Malaysian automotive industry and emergence of indigenous brands, regionally.

However, the sector overall is toughening up. According to AmInvestment Bank Bhd (AmInvestment Bank) in its strategy report for the second half of 2017 (2H17), approval rate for loans on passenger cars averaged 51 per cent in the one year to April 2017, and this was on par with the average for 2016.

“This denotes that banks have remained just as strict as last year, and it may take some time for the approval rate to return to the average of 55 to 57 per cent in the two years prior to 2016,” the research firm said.

AmInvestment Bank noted that with regards to applications for car loans, bank loans for passenger cars were seven per cent higher year on year (y-o-y) in the January to April period, in tandem with the y-o-y increase in total industry volume (TIV).

“However, the monthly average amount of loans applied for the one year to April was two per cent lower y-o-y AT RM6.7 billion, indicating the present state of consumer sentiment,” it said.

Competing for revenue growth

On margins, AmInvestment Bank observed that they have generally reverted to the levels seen in early 2016 for companies, with the exception of Tan Chong Motor Holdings Bhd and DRB-Hicom.

Meanwhile, Proton and Nissan especially saw dual hits on their sales volume and margin.

The research firm pointed out that for the rest, retaining a status quo after the last five quarters seems to be the best-case scenario.

“Companies are competing for revenue growth. At the same time, they are trying to sustain their margins, which is challenged by the weaker ringgit,” it said.

“While the US dollar-ringgit rate has trended upwards in the last three quarters up until the first quarter of financial year 2017 (1QFY17), our house projects the ringgit to improve only slightly from here.”

This was premised on a strong domestic data for Malaysia while there appears to limited progress on the initiatives of US’s fiscal policy, it added.

As of May 2017, the Malaysian Automotive Association (MAA) saw that sales volume was 13 per cent or 5,932 units higher than the similar corresponding month in 2016.

This was on the back of the pre-Hari Raya festive season boost and new model launches.

Looking at year to date (YTD) figures, the auto sector’s total industry volume (TIV) was at 234,186 units, a 7.4 per cent increase from 218,121 units last year.

National marquees still in the lead

Nevertheless, the two national carmakers remain the cornerstone of Malaysia’s auto market as they accounted for half of all the cars sold here.

However, AmInvestment Bank observed that both were starting to see sales moderating after a slew of new launches in the second half of 2016.

Affin Hwang Investment Bank Bhd (AffinHwang Capital) highlighted that Proton Holdings Bhd’s (Proton) sales of 7,200 units in May brought the first five months (5M17) sales to a total of 32,200 units.

“This represents an 11.8 per cent y-o-y increase but continues to fall short of its 120,000 sales target for 2017,” the research firm said, adding that Proton recently launched its new Proton Iriz in June 2017.

Meanwhile, AffinHwang Capital noted that Perusahaan Otomobil Kedua Sdn Bhd’s (Perodua) sales of 17,200 units brought 5M17 sales to 81,900 units.

The research firm further noted that Perodua is on track to achieve its 2017 sales target of 202,000 units from the two new facelifts introduced in 2017 - Axia (January 2017) and Bezza (April 2017).

As for foreign car makers such as Honda, Hong Leong Investment Bank Bhd (HLIB Research) highlighted that YTD, it recorded strong sales of 43,700 units.

HLIB Research believed Honda is likely to outperform its targeted 100,000 sales, driven by new launches of high volume models such as the new BRV, City facelift and Jazz facelift in 2017.

HLIB Research also highlighted that YTD, Toyota achieved sales of 28,400 units and is on track to achieve its target 68,500 sales in 2017. This is banking on the launch of a facelift model and a few new variants in 2017, the research arm observed.

Nissan did not fare as well compared to its counterparts, recording YTD sales 10,800 units, a 36.1 per cent decline y-o-y.

“The weak Nissan sales is unsurprising, given lack of new models and stiff competitions from new models introduced by other original equipment manufacturers (OEMs),” the research arm said.

This denotes that banks have remained just as strict as last year, and it may take some time for the approval rate to return to the average of 55 to 57 per cent in the two years prior to 2016. AmInvestment Bank