Kuala Lumpur: The auto sector is expected to stay robust this year although the exemption on the sales and service tax (SST) has been lifted, according to two investment banks.
RHB Investment Bank Bhd (RHB IB) said the total industry volume (TIV) for the auto and autoparts sector should strengthen in March as carmakers deliver on orders taken during the period when the SST was exempted.
“However, the TIV could soften in April, but it should remain robust as carmakers continue to deliver on customers’ orders, which are still healthy even in the absence of the SST-exemption,” it said in a note today.
It said that with strong orders in hand and supply chain constraints largely resolved, auto companies should have earnings visibility this year.
“As input costs will likely remain steady from the fourth quarter of 2022-levels and gradually decline (with falling raw material costs and easing supply tightness), the orders should translate into deliveries and earnings,” it added.
As such, the investment bank has maintained its “overweight” call on the sector, with top picks including Bermaz Auto Bhd and UMW Holdings Bhd (UMW).
RHB IB said the key risks to its recommendation include softer-than-expected orders and deliveries, and resurgence of supply chain issues.
In a separate note, Kenanga Research said the TIV of 112,128 units for the first two months of 2023 was 16% of its full-year projection of 720,000 units. “(Therefore) it is within expectation,” it said.
It noted that the TIV was underpinned by strong delivery of backlog orders in February compared with January when the number of work days was reduced by the Chinese New Year holidays.
Besides, it said, new launches kept new bookings strong. This was especially so for the all-new Axia, which racked up 27,000 units in new bookings.
Kenanga’s projection implies that the TIV for 2023 would sustain at the record 2022 level of 720,000 units versus a more conservative forecast of 650,000 (-9.8%) by the Malaysian Automotive Association.
“This will be underpinned by a pause in the overnight policy rate hike and stable new car prices, thanks to the deferment of new excise duty regulations that could have resulted in prices of locally assembled vehicles increasing by 8% to 20%, and a healthy industry booking backlog of 350,000 units as at end-February 2023,” the research firm said.
It has also maintained its “overweight” call for the sector, with top picks including MBM Resources Bhd and UMW.
