CIMB, Kenanga remain ‘underweight’ on auto sector

PETALING JAYA: Analysts, including those at CIMB Research and Kenanga Research, have reiterated their “underweight” calls on the automotive sector amid stalling sales of new cars.

They also warned that currency volatility, which has resulted in higher import costs for completely built up models and completely knocked down (CKD) kit components, have increased the risk of earnings disappointment by carmakers.

“We maintain underweight call on the sector due to sluggish sales and margin erosion from higher operating expenditure and intense competition,” said CIMB Research, while adding that disappointing earnings over the next one year could present downside risks.

CIMB predicted that total industry volume (TIV) growth rate in the second half of the year to be lower, partly due to the high base effect in the second half of last year.

“We expect the market to remain competitive, with prolonged discounting as dealers continue to drive down inventory levels.

“Overall, we still project 3% TIV growth in 2017,” it said.

Overall, the January-July TIV of 333,014 unit made up 57% of CIMB’s full-year TIV forecast of 580,000 units.

The Malaysian Automotive Association (MAA) last week said sales in August was projected to improve after a slowdown in July.

The growth projection, it said, was due to ongoing promotional campaigns by dealers and fulfillment of back orders as the e-daftar system is expected to return to normal.

The January-July 2017 TIV grew 4.7% yearon-year (y-o-y) to reach 333,014 units, driven by higher passenger vehicle sales of both national and foreign brands, which rose 7.9% and 4.1%, respectively. Despite the improving TIV sales, MAA said total vehicle production volume fell by 1% y-o-y to 299,270 units in the first seven months of 2017.

MAA attributed the production decline to the cautious stance taken by the automakers and inventory adjustments market environment.

Perodua remained the local brand market leader with a 35.6% share after selling 118,679 vehicles in the seven-month period.

Honda continued to show impressive growth, raising its market share from 14.9% in the corresponding seven-month period on 2016 to 18.4% in the first seven months of this year, driven by new model launches – BR-V, City facelift, Jazz facelift, CR-V and City hybrid – as of July 2017.

Meanwhile, Proton stayed in third place, with 13.6% market share, after recording 14.5% sales growth the seven-month period.

Meanwhile, Kenanga Research is keeping its TIV target of 590,000 units.

The firm expects forthcoming model launches, including by Honda and Toyota, to drive up car sales in the coming months. amid the soft