Motor vehicle sales expected to pick up in 2nd half

PETALING JAYA: Auto sales are expected to pick up in the second half of the year (2H15) to make up for the shortfall in the total industry volume (TIV) for 1H15, according to analysts who mostly maintained a “neutral” call on the sector.

First-half TIV declined 3.3% year-onyear to 322,184 units.

MIDF Research, which maintained its TIV growth target of 0.5% to 670,000 units for 2015, expects the market to normalise in light of higher living costs and uncertain economic conditions, which may adversely affect consumer confidence on big ticket items, thus offsetting any gains made from lower prices.

The Malaysian Automotive Association also targets a TIV of 670,000 for the year.

MIDF believes that consumers are still cautious on their big-ticket item purchases in light of the current economic climate.

“We remain positive on MBM Resources Bhd and Berjaya Auto Bhd (BAuto) as we foresee these stocks will directly benefit from the strong sales growth for both Perodua and Mazda vehicles respectively. Among our coverage, we have a buy call on MBM and BAuto while we maintain neutral on UMW Holdings Bhd and Tan Chong Motor Holdings,” said MIDF in a report yesterday.

Affin Hwang Capital maintained its base case assumption of better industry sales in 2H15, underpinned by consumer spending recovery (albeit at a moderate pace) and increased sales campaigns from auto players.

“That said we believe the heightened competition and an unfavourably weak ringgit against the US dollar (increased cost pressure) operating environment should prove difficult for auto players that lack a strong model line-up, for example UMW.”

It maintained its 2015 TIV forecast of 680,000 units with its top pick being MBM.

It said key downside risks to its view would include a worse-than-expected economic slowdown, which would negatively affect business and consumer sentiment; a tightening of auto financing that would hurt the ability of car buyers to borrow; and unfavourable exchange rates.

The upside risks would include more benign margin compression; and strongerthan-expected TIV’s.

Kenanga Research believes auto sales will pick up in the 2H15 to make up for flat TIV growth assumption, underpinned by aggressive advertising and promotion (A&P) activities, festivities and stronger seasonal patterns.

“Recall that the 2H auto sales for the past three years accounted for 51-52% of the full year TIV numbers. Meanwhile, to make up for the lagging sales caused by weaker consumer sentiment in 1H, we believe auto companies will be more aggressive on A&P activities for the remainder of 2015. Thus, we view that stronger sales in the 2H could very likely be at the expense of margins erosion.”

On stock selection, as the trend of weak ringgit against the US dollar still persists amid the cloudy local economy outlook, Kenanga prefers to stick with auto an player that is less vulnerable to the unfavourable currency translation, and have targeted customer base in the middleincome to high-income bracket, which are less sensitive to the rising cost of living.

Its top pick remains as BAuto with investment merits backed by its superior growth prospect from low base on the back of a strong pipeline of exciting models, margin expansion on the back of favourable exchange rate (with huge exposure in yen) as well as lower import duties, and potential dividend payout of 56%, which could translate into decent 5.6% dividend yield.

All three research houses maintained a “neutral” call on the sector.