RHB Research remains confident of its 680,000 TIV estimate for the year.
PETALING JAYA: The automotive and auto parts sector can still offer attractive yields despite the anticipated slowdown in car sales next year, says RHB Research.
The research house said some auto stocks worth holding on to include UMW Holdings Bhd
and MBM Resources Bhd, given their 4% and 10% yields, respectively.
“Most of the stocks are also fairly priced at this juncture, trading near their five-year historical averages,” RHB Research said in a note to clients yesterday.
The research house has maintained a “neutral” call on the sector, with its sector top pick being Bermaz Auto Bhd (BAuto).
“We think BAuto’s brand-specific factors make it relatively more resilient.
“The cheaper CX-30 completely-knocked-down (CKD) should support Mazda volumes, while Kia and Peugeot new model launches will likely continue to drive incremental volume growth from a low base,” RHB Research pointed out.
In addition, the research house likes BAuto’s 9% forecast financial year 2024 yield.
According to the Malaysian Automotive Association (MAA), May total industry volume (TIV) was 61,795 units, up 33% year-on-year (y-o-y) and rose 22% month-on-month (m-o-m).
RHB Research also remains confident of its 680,000 TIV estimate for the year.
“However, with a lack of catalysts to boost car sales in 2024, and with the possibility of TIV normalising to a low 600,000 levels, we have recently turned less bullish on the auto sector,” said the research house.
Similarly, Hong Leong Investment Bank (HLIB) Research, which maintains a “neutral” rating on the sector, expects TIV to drop after fulfilling the current huge backlog orders of 300,000 units.
“Nevertheless, we advise investors to accumulate MBM and DRB-Hicom Bhd as we expect national original equipment manufacturers (OEMs) to triumph over the longer term with potential growth from new export markets,” it noted.
HLIB Research has “buy” calls on MBM and DRB-Hicom at a target price (TP) of RM4.80 and RM2.18, respectively.
Year to date, the national OEM achieved 122,100 units (up 15% y-o-y), relatively in line with its 2023 sales target at 314,000 units.
Meanwhile, MIDF Research in its latest report said the strong rebound in May TIV was within its expectations and on track to breach the 700,000 mark.
The research house has kept its positive stance on the auto sector, given the huge backlog orders, sustained new booking momentum and a supportive macro backdrop, while valuations are around 20% to 40% below mean.
“BAuto is now our tactical favourite, given its exposure to the weak Japanese yen while having minimal exposure to the strong US dollar,” said MIDF Research, which has a “buy” call on BAuto with a TP of RM3.30.
BAuto is also riding on CKD model expansion via Mazda, Kia and Peugeot while its dividend yield of 9.7% is attractive, it added.
MIDF Research also likes MBM with a TP of RM4.70 for its cheap exposure to Perusahaan Otomobil Kedua Sdn Bhd (Perodua), which has a high model localisation rate with minimal foreign exchange risk.
In addition, it has the strongest backlog bookings among the major players, stretching up to six to nine months.
MBM dividend yield is also attractive at 7.1%, backed by a strong balance sheet with net cash, which accounts for 14% of market cap.
MIDF Research also said despite its TP revision, UMW is still a “buy” with a TP of RM4.60.
The company is a prime beneficiary of the recovery in auto demand, given its dominant 52% market share via 51%-owned UMW Toyota and 38%-owned Perodua, added the research house.
Furthermore, UMW’s equipment division is a proxy to recovering business momentum, rising infrastructure projects and commodity demand, whereas aerospace is an indirect reopening play on the back of a recovery in global air travel, said MIDF Research.
