Kenanga reiterates 'underweight' rating on auto sector

style="text-transform: uppercase;">Kuala Lumpur: Kenanga Research has reiterated its "underweight" rating on the automotive sector, amid lower total industry volume (TIV) figures for January.In a research note Wednesday, it reduced its estimation for Malaysia's TIV sales figures to 590,000 units this year, on par with the Malaysian Automotive Association (MAA) estimates to reflect the reduction in production of affordable passenger marques.

"Our view on the sector remains conservative as consumer purchases of automobiles have been clamped by stringent lending guidelines, as well as prevailing weakness in sentiment resulting from higher living expenses.

"We expect 2017 would only benefit from the spillover of new launches from the last quarter of 2016 as there are fewer this year when compared to 2015," Kenanga Research said.

Vehicle sales dropped 13 per cent to 580,124 units last year from a record high of 666,674 units in 2015.

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The MAA in January projected the TIV to recover by 1.7 per cent to 590,000 units this year after a challenging period of 2016.

But January 2017 TIV came in weaker at 44,667 units (-31 per cent month-on-month and +0 per cent year-on-year).

Driving into 2017, Kenanga Research said the unfavourable forex is still the main issue for automakers, squeezing their profit margins with higher operating costs, while in lieu of higher living expenses, consumers may continue to limit spending on big ticket items.

"With this, we gather there is lack of re-rating catalysts to bring about any significant shift in the sector," it said.

The research firm said TIV sales numbers this year are likely to be driven by new models launched, such as the face-lifted Perodua Axia, Perodua Bezza, the new Proton Saga, the new Proton Persona, Proton Ertiga, the new Honda Civic, the facelifted Toyota Vios, the new Toyota Innova, the new Toyota Corrolla Altis and new Honda BRV.

Meanwhile, the forthcoming model launches expected for this year are the face-lifted Honda City, Honda Jazz Hybrid, Honda CR-V, the new Toyota CH-R, Toyota Hilux 2.4G Limited Edition and face-lifted Toyota Camry. – Bernama