Stronger ringgit boost to auto firms’ earnings

PETALING JAYA: The recent strength of the ringgit against the US dollar is expected to boost earnings of automotive companies exposed to the greenback in the fourth quarter of this year.

Maybank Investment Bank Research (Maybank IB) said in a report that the recent uptick in hire-purchase loan applications and bank approval rates, together with the recovering ringgit, were opportunities spurring recovery in both total industry volume (TIV) and earnings.

“Bermaz Auto Bhd (BAuto) is our top buy pick for its strong balance sheet and assetlight business model, which allow it to weather tough times. With interesting new models ahead to lift earnings, we believe that BAuto is back on an earnings growth trajectory.

“We also like MBM Resources Bhd for its Perodua exposure and Tan Chong Motor Holdings Bhd (TCM) for its trough valuations on a price-to-book value perspective.”

BAuto shares ended four sen higher at RM2.08 yesterday, while MBM was unchanged at RM2.13 with TCM dropping one sen to RM1.72.

The ringgit rose to a 10-month high of 4.1825 per dollar this month, leading an advance in Asian currencies.

MIDF Research also said the ringgit’s strength, particularly in the past month, augured well for the sector.

“Of the auto players under coverage, UMW Toyota (a subsidiary of UMW Holdings Bhd) has the largest exposure to the ringgit, given that all its imported completely-knocked-down and completely-built-up kits from Thailand are transacted in US dollars.” UMW closed one sen down to RM5.44 yesterday.

Given the low localisation rates of between 20% and 60%, relative to the national makes of 80% to 95%, MIDF Research estimates that around half of the total component cost was imported.

“TCM, meanwhile, is estimated to have circa 80% (of total imported cost) exposure to dollar imports with the rest in yen. Every 1% change in the dollar impacts our 2018 forecast by 4.7% for UMW and 16% for TCM.

“As TCM is loss-making (relative to the steady state earnings of RM200mil to RM300mil per annum prior to the downcycle), it is more sensitive to the foreign exchange now.”

According to the Malaysian Automotive Association (MAA), the sales of passenger and commercial vehicles in Malaysia declined marginally by 1% or 499 units in August compared to a year ago, but increased by 6.5% or 3,167 units compared to the previous month.

The month-on-month increase was on the back of promotional campaigns by car companies, as well as the fulfilment of back orders as the “e-daftar” system returned to normalcy.

Year-to-date, sales of passenger vehicles increased 5.2% to 345,283 units, while sales of total industry vehicles, which comprise passenger vehicles and commercial vehicles, was 4% higher than the same period a year ago.

The association expects sales volume for this month to be maintained at the same level as last month.