PETALING JAYA: Budget 2025, to be tabled on Oct 18, is expected to provide more details on the implementation of RON95 subsidy rationalisation while continuing to promote electric vehicle (EV) adoption, according to CIMB Securities Research.
The research house noted that both initiatives could play a significant role in driving total industry volume (TIV) demand in the automotive sector for 2025.
“We do not expect any surprises for the auto sector in the upcoming Budget 2025.
“However, we anticipate the government to provide more details on RON95 subsidy rationalisation implementation,” it said, adding that this could be a key factor influencing automotive demand in the coming year.
CIMB Securities Research expects softer TIV in the last quarter of 2024 (4Q24) due to the government’s plan to rationalise fuel subsidies.
However, it highlighted that the introduction of the Employees’ Provident Fund Account 3 and salary hikes for civil servants should provide support for new vehicle sales.
Meanwhile, the research outfit expects the government to focus on promoting EV adoption in the upcoming Budget 2025.
“We expect the government to continue offering tax reliefs and rebates to individuals and investments in new EV infrastructure,” it noted.
These measures could further drive EV growth, in line with the country’s push for greener transportation.
In Budget 2024, the government extended personal income tax relief of up to RM2,500 for EV charging equipment until 2027, along with tax deductions for EV rentals.
In 2023, hybrid and battery EV sales accounted for 4.8% of the TIV, with 45,000 units sold.
The government has set a 15% EV penetration target by 2030, in line with its Low Carbon Mobility Blueprint.
Despite the anticipated TIV slowdown for 4Q24, the research house foresees resilient sales momentum in September 2024, driven by new promotional campaigns for Malaysia Day and the launch of new models such as the Proton X70 facelift and Mitsubishi Xpander.
While the Malaysian Automotive Association (MAA) is forecasting a 4.3% year-on-year (y-o-y) decline in TIV for 2024 to 765,000 units, CIMB Securities Research is even more cautious, projecting a 6% y-o-y drop to 751,000 units.
The brokerage cited the absence of sales tax exemptions, potential higher RON95 costs and increased competition from premium EVs and Chinese original equipment manufacturers as key factors.
It also noted that the anticipated fuel subsidy rationalisation could add inflationary pressure, further dampening consumer sentiment.
Furthermore, it pointed out that the tightening liquidity in the financial sector, reflected in a dip in hire purchase loan approval rates to 58.1% in the first seven months of 2024, may further impact demand.
In August 2024, TIV fell 0.8% month-on-month (m-o-m) to 71,162 units, after recording its highest monthly sales year-to-date in July.
In contrast, total production volume rose by 5.2% to 73,966 units, driven by a recovery in national brands like Perodua, which saw an 8.5% m-o-m increase in production to 35,241 units.
The MAA attributed the TIV decline to weaker commercial vehicle sales, which CIMB Securities Research believes is likely due to the removal of the diesel subsidy in June 2024.
Despite these headwinds, the research firm maintains its “overweight” rating on the Malaysian auto sector, citing attractive valuations and dividend yields.
The sector’s net profit is expected to decline by 19% y-o-y in 2024, compared to a 25% increase in 2023, driven by lower sales volume and narrowing profit margins amid inflationary pressures.
However, the sector trades at 10.1 times 2025 price-to-earnings ratio, below its five-year mean of 12.5 times, and offers potential dividend yields of 6.1% and 6.3% for 2024 and 2025, respectively.
