PETALING JAYA: A two-speed local automotive market is being played out as expected in 2024 and this trend could persist into the following year, says Kenanga Research.
The forecast comes as the securities firm noted a slight improvement in the sector’s earnings during the recently concluded third-quarter (3Q24) results season with 14%, 71% and 14% of companies coming in above, within, or below its expectations, respectively.
Elaborating, Kenanga Research projected that the affordable segment is likely to maintain its status quo, as its target customers – the bottom 40% income group (B40) – will be spared the impact of the impending fuel subsidy rationalisation.
Additionally, the B40 could potentially benefit from the introduction of the progressive wage model.
“The pay rise for most civil servants, where top management will receive a 7% rise while those in professional and executive roles see a rise of 15%, in December 2024 will also partially restore their spending power eroded by high inflation,” it said in a note to clients yesterday.
However, the same cannot be said for the mid-market segment as its target customers, the middle 40% income group, may hold back from buying a new car, or may opt for smaller models to cut their fuel bills.
Meanwhile, the brokerage highlighted that the implementation of e-invoicing has had a lesser impact on car sales than initially anticipated.
It also noted that that automakers are racing to provide discounts and rebates to sustain demand and mitigate the impact of e-invoicing on consumer sentiment.
“E-invoicing essentially will put the stop to the common practice of providing 100% hire purchase financing.
“Meanwhile, the recent strengthening of the ringgit against the US dollar is expected to take effect in reducing the costs for automotive parts in the second half of 2025, as well as improving margins, as automakers usually procure inventory six months ahead of production to ensure supply sustainability,” it said.
Kenanga Research pointed out that vehicle sales will also be supported by the growing demand for new battery electric vehicles (BEVs), which benefit from Sales and Service Tax exemptions and other EV-related incentives.
These incentives apply to completely built-up models until next year and continue until 2027 for completely knocked-down units.
Citing the Transport Ministry, the report noted that new registration for BEVs leapt from 274 units in 2021 to over 3,400 units in 2022, followed by 10,159 units last year.
For the first nine months of this year, almost 16,000 units were registered, based on Transport Ministry’s data, representing 3% of the total industry volume (TIV).
“We expect more favourable incentives from the government, which has set a national target for EVs and hybrid vehicles of 15% of TIV by 2030 and 38% by 2040.
“Meanwhile, the government will speed up the approval for charging stations. The number of proposed charging stations, currently at 4,225 (3,354 built to-date), should almost triple to 10,000 by end-2025,” the research house said.
Its top pick for the sector is MBM Resources Bhd
(MBMR), citing the latter’s strong earnings visibility, backed by an order backlog of more than 90,000 Perodua vehicles.
MBMR is also seen as a good proxy for the mass-market Perodua brand, given that it is the largest dealer of Perodua vehicles in Malaysia.
That said, the research house admitted it may switch its selection to Hong Leong Industries Bhd, as MBMR has almost reached its target price of RM6.80.
Kenanga Research has set a target price of RM15.50 for Hong Leong Industries.
