PETALING JAYA: The local automotive sector is expected to see lower sales volumes and higher operating costs as competition intensifies.
Hong Leong Investment Bank Research (HLIB Research) is keeping its “neutral” call on the sector as the current order backlogs have continued to shrink, and slower sales are expected in the coming quarters.
“We expect earnings for the sector to dip in 2024 due to lower sales volumes and higher operating costs. We have also noticed more aggressive new launches by new Chinese original equipment manufacturers (OEMs) with attractive pricing, which will provide stiff competition for incumbent OEMs,” the research house said.
HLIB Research noted that there is also increasing competitive price discounting for new electric vehicle (EV) models.
“The government has also set 2025 as the target for national OEMs to introduce new affordable EV models,” it added.
The research house’s top picks are MBM Resources Bhd
(MBMR) with a target price of RM6.50 and DRB-Hicom Bhd with a target price of RM1.65.
It said the two companies have strong ties with the national OEMs Proton Holdings Bhd and Perodua, which are less affected by competitive pressure for models priced below RM100,000 and potential export growth in the longer term.
Recently, the Malaysian Automotive Association (MAA) reported a total industry volume (TIV) of 68,700 units as of May.
The TIV number showed robust growth of 7.4% year-on-year (y-o-y) and 7.9% year-to-date to 328,900 units, mainly driven by improvements in the supply chain and deliveries for Perodua models for the year as the national OEM still has a relatively high backlog of orders.
On a month-on-month basis, TIV saw 18.4% growth on the back of improved sales across all top brands.
The market share of national brands grew to 63.9% (up 3.2 percentage points y-oy) driven by positive growth from Perodua, which saw improved sales across all its segments.
Notably, Perodua’s multi-purpose vehicle (MPV) and sport utility vehicle (SUV) segments recorded spikes in sales to 4,300 units and 5,400 units, respectively, in May (up 57% and 44% y-o-y) attributable to increased advertising and promotional activities.
The market share of non-national auto players fell to 36.1% (down 3.2 percentage points y-o-y) due to weaker sales in comparison with the national auto players.
“We maintain our 2024 TIV expectation at 720,000 units versus MAA’s forecast of 740,000 units – coming off the record high of 799,600 units in 2023 – mainly due to declining order backlogs and easing new orders,” HLIB Research said.
Nevertheless, the research house said there is still upside potential from new-model launches from late-2023 and in 2024.
It added there will be more aggressive sales and marketing activity to sustain sales by various OEMs. People now being able to withdraw from the recently introduced EPF “Account 3” will also help spur demand.
Similarly, Affin Hwang Investment Bank Research is maintaining a “neutral” rating on the sector with an unchanged 2024 TIV of 740,000 units, which is a 7.5% decline y-o-y.
“For sector exposure, we favour MBMR as its earnings are more resilient than those of its peers, benefiting from Perodua being the market leader,” the research house added.
It expected strong demand for national brands to be driven by order backlogs and government initiatives to improve consumer purchasing power.
