Autos projected to see slight growth next year
KUCHING: Despite December 2017 total industry volume (TIV) has been projected to be exceptionally strong, analysts expect the automotive sector to have a slightly stronger growth next year.
According to the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research), November TIV grew 4.6 per cent m-o-m and 0.2 per cent y-o-y to 49,184 units.
Meanwhile, year to date (YTD) TIV stood at 521,908 units, accounting for 96 per cent of MIDF Research’s 2017F TIV if annualised.
“Whilst we do expect December TIV to be exceptionally strong due to year-end clearance, we tune down our 2017F TIV to 588,537 units – the downward revision affects mainly our forecasts for Proton, which is revised down to 73,000 units from 77,000 units previously.
“For financial year 2018 forecast (FY18F), we expect TIV to register at 598,000 units, representing a 1.7 per cent y-o-y growth,” it said.
Since MIDF Research’s last report, the ringgit has strengthened further to RM4.08 per US dollar and RM3.61 per 100 Japanese yen (x100).
Whilst we do expect December TIV to be exceptionally strong due to year-end clearance, we tune down our 2017F TIV to 588,537 units – the downward revision affects mainly our forecasts for Proton, which is revised down to 73,000 units from 77,000 units previously. MIDF Research
“This is a big positive for auto players under our coverage and underpins our bullish sector call,” the research arm said.
UMW Toyota has the largest exposure to the US dollar, MIDF Research noted, given that all its imported completely knocked down (CKD) kits and completely built ups (CBUs) are transacted in that currency.
Given low localisation rates of between 20 per cent to 60 per cent relative to the national makes (between 80 per cent to 95 per cent), the research arm estimated around half of total component costs are imported.
Meanwhile, Tan Chong Motor Holdings Bhd ( Tan Chong) is estimated to have circa 80 per cent of total imported cost exposure to US dollar imports with the rest in Japanese yen.
Every one per cent change in the US dollar impacts MIDF Research’s FY18F by 4.7 per cent for UMW Holdings Bhd (UMW) and 16 per cent for Tan Chong.
“As Tan Chong is loss making (relative to the steady state earnings of RM200 million to RM300 million per annum prior to the downcycle) it is more sensitive to forex changes now,” the research arm said.
As for Bermaz Auto Bhd (Bermaz), MIDF Research said the group is a key beneficiary of the ringgit strength against the Japanese yen as its imports are 100 per cent exposed to the latter.
“Bermaz is exposed to the Japanese Yen via CBU imports, whereas CKDs i.e. the CX5 and Mazda 3 models are purchased at a fixed ringgit price from 30 per centowned Mazda Malaysia Sdn Bhd (MMSB), which is the importer and assembler of Mazda CKDs.
“To make this possible, MMSB absorbs Japanese Yen volatilities from CKD imports; which means that MMSB also benefits from the current ringgit strength.”
MIDF Research estimated that every one per cent strengthening of the ringgit against the Japanese Yen impacts Bermaz’s FY18F (financial year ended (FYE) April) earnings by three per cent.
The research arm noted that Perodua is another beneficiary given its exposure to the Japaense Yen (and partly US dollar). Every one per cent change in the Japanese Yen impacted MIDF Research’s FY18F by one per cent.
UMW is the largest local shareholder of Perodua with a 38 per cent stake followed by MBM Resources Bhd with an effective 22.6 per cent stake.