CIMB Securities sees total industry volume decliniing 9pc this year

The automotive sector’s total industry volume (TIV) is expected to decline nine per cent year-on-year in 2024, according to CIMB Securities.

This is due to the resumption of the sales and service tax, higher fuel costs (should the government proceed with its subsidy rationalisation programme in the second half of 2024) and rising competition following the influx of new electric vehicle (EV) players in the market.

This decline is expected to be partly offset by new launches, especially in the EV segment, and an accommodating interest rate environment this year.

CIMB Securities said its 2024 TIV forecast of 727,000 is still marginally higher than 2022’s 721,000.

“Moreover, we expect national brands to fare relatively better, with a 4.4 per cent decline compared to a 16 per cent year-on-year drop for the non-national segments, due to the affordable offerings and broader market presence.

“Our 2024 TIV forecast is on the upper end of the street estimates, which range between 625,000 and 720,000.

“The higher TIV in the first quarter of 2024 may not lead to sector earnings’ outperformance as it is negated by foreign exchange impact due to weaker ringgit against US dollar,” it said in a note.

CIMB Securities expects the automotive sector’s net profit to decline 14 per cent in 2024 compared to an increase of 29 per cent in 2023, mainly due to lower sales volume

However, it said automotive companies with overseas exposure like Sime Darby Bhd and Bermaz Auto Bhd will be able to record higher overseas contributions, which will offset the weaker sales volumes in 2024.

The investment bank has upgraded the sector to “overweight” due to

its undemanding valuations and strong dividend yields.

CIMB Securities’ current top pick in the automotive sector is Bermaz Auto due to its attractive financial years 2024-2025 forecast dividend yields of nine per cent to 9.6 per cent and a strong net cash position of RM395 million.

Moving forward, it said potential catalysts for the automotive sector include higher contribution from local assembly programmes.

“Key catalysts for the sector are the strengthening of the ringgit versus the US dollar and yen, a reduction in interest rates, and favourable government policies to revive domestic demand.

“The ringgit’s depreciation versus the US dollar and yen, interest rate hikes and deteriorating consumer sentiment due to the subsidy rationalisation and new taxes are key downside risks to our call,” it noted.

In March, the TIV grew 11.3 per cent month-on-month to 71,052, driven by robust demand for both passenger vehicles and commercial vehicles.

Concurrently, the total production volume in March also grew, but at a slower rate of two per cent month-on-month, to 66,923 units.

The Malaysian Automotive Association (MAA) attributed the higher TIV to a rush in deliveries for companies closing their financial year-end accounts on March 31 and the impact of Hari Raya Aidilfitri campaigns.

However, MAA expects a lower TIV delivery in April due to fewer operating days during the Hari Raya holidays.

The TIV grew 4.5 per cent yearon-year to 201,358 in the first quarter, mainly driven by higher sales from the passenger vehicle segment.

CIMB Securities attributed the stronger sales to resilient demand from market leader Perodua.