Demand for cars to normalise after end of tax holiday period
KUCHING: Demand for cars is expected to normalise in the last quarter of 2018 ( 4Q18) as consumers have brought forward purchases to take advantage of the tax holiday period prior to the Sales and Services Tax (SST).
MIDF Amanah Investment Bank Bhd (MIDF Research) in its 4Q18 strategy report said despite car price falling by two to three per cent post-SST, it still expected demand to normalize after an exceptionally strong Jun- Aug period.
This is because purchases have been brought forward as consumers took advantage of the tax-holiday, while most auto players have already, or are close, to hitting full year targets, suggesting little reason to embark on the typical year- end sales campaigns.
“We expect the market to dry up in 4Q18 before normalizing in 1Q19,” it said in the report, adding its belief that national cars could gain market share.
“Given major launches in the next six months, we think national cars could gain market share in the near-term.
“Proton is expected to officially launch its maiden SUV model, the X70, in 4Q18 (based on Geely’s Boyue model), initially as CBU, but later to be locally assembled, targeted in2Q19.
“Perodua was earlier scheduled to launch its maiden SUV in 4Q18 but had delayed this to 1Q19. We expect Perodua’s SUV to be more competitively priced as it seeks to compete against the CKD version of the X70.”
Along the same road, Kenanga Investment Bank Bhd (Kenanga Research)sawstrongperformances from Malaysian auto makers in the second quarter of 2018 (2Q18) as expected from the commencement of zero-rated tax holiday in 1st June 2018, and further supported by pre-Hari Raya festive season sales.
“Overall, car sales volume for 3QCY18 is expected to be higher than 2QCY18 with the remainder of the tax-holiday in July 2018 and August 2018.
“However, we expect 4QCY18 to experience a slowdown in vehicles sales with implementation of the new SST, but cushioned by the usual year-end season promotion. With the new SST gazetted on September 1, 2018, vehicles are charged 10 per cent sales tax.
“Nevertheless, from the recent announcement by certain car makers, the prices for the locallyassembled and CompletelyKnocked-Down (CKD) units have dropped by one per cent to three per cent (compared to six per centrated GST), whereas prices for the Completely-Built-Up (CBU) units have increased by one to three per cent.”
Kenanga Research believed the unexpected price decrease in locally- assembled and CKD units was attributed to the better compliance of Industrial Linkage Programme ( ILP) regulation, which provides incentives and duty exemption to the original equipment manufacturers (OEMs) that use local components (under National Automotive Policy 2014).
On this point, MIDF Research said the upcoming National Automotive Policy could bring about some uncertainties going into 4Q18 as it could involve measures to support a potential third national car.
“Plans are still sketchy at this point, but in the case of significant incentives for the new national car’s models in the form of taxes or barriers for the non-nationals, this could somewhat alter the current landscape,” it added.
“That said, there is also the issue of competing with the existing national cars, positioned in the lowest segments of the market.
“We remain overweight on autos at this juncture.”