Automotive sector faces uphill battle

KUALA LUMPUR: Malaysia’s automotive sector is expected to see a slowdown due to rising operational costs and weakening consumers’ spending, says the research arm of Kenanga Investment Bank Bhd (Kenanga Research).

With living expenses on the rise and unfavourable foreign exchange (forex) rates for the ringgit, analysts are less optimistic on the sector’s prospects in 2017.

“We believe consumers may continue to limit spending on big ticket items such as cars in lieu of higher living expenses. Additionally, the unfavourable foreign exchange still remains a major issue for automakers, as it squeezes their profit margins with higher operating costs,” opined the research arm.

In light of this pessimistic view and January’s total industry volume (TIV) only meeting seven per cent of its initial 610,000 unit TIV forecast, the research arm has reduced its estimates of TIV to 590,000 units with a limited growth of 1.7 per cent year over year (y-o-y).

“This is in line with our conservative view on the sector given the prevailing weakness in consumer sentiment as well as the unfavourable import costs that are corroding automakers’ profitability, and the lack of rerating catalysts for the sector,” explained the research arm.

It believed that TIV sales in 2017 would instead be driven by new models launched by automakers, such as the face-lifted Perodua Axia, Perodua Bezza, the new proton Saga, the new Proton Persona, Proton Ertiga, the new Honda Civic, the face-lifted Toyota Vios, the new Toyota Innova, the new Toyota Corolla Altis and the new Honda BR-V.

Forthcoming model launches such as the face-lifted Honda City, Honda Jazz Hybrid, Honda CRV, the new Toyota CH-R, Toyota Hilux 2.4G and the face-lifted Toyota Camry are also expected to drive TIV in the near to medium term within the automotive sector.

According to figures released by the Malaysian Automotive Association (MAA), TIV sales for January registered at 44,667 which was a sharp drop of 31 per cent month over month (mo-m).

The research arm attributed the sharp drop in TIV sales to the high base last month which was brought about due to aggressive sales campaigning by auto players in an attempt to make up for slow sales that year.

Kenanga Research maintained its ‘underweight’ rating on the automotive sector given the outweighing of ‘underperform’ ratings in the total market capitalisation of its stock coverage.