PETALING JAYA: The automotive industry’s earnings visibility remains good, as it is backed by a booking backlog of 150,000 units.
Kenanga Research said a two-speed automotive market locally is being played out as expected in 2024 and could stay the same until next year.
It will be business as usual for the affordable segment as its target customers, ie, the B40 group, will be spared the impact of the impending fuel subsidy rationalisation and could also potentially benefit from the introduction of the progressive wage model.
Kenanga Research said the pay rise for most civil servants (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.
However, the same cannot be said for the mid-market segment as its target customers, ie, the M40 group may hold back from buying a new car, or they may down trade to a smaller car or switch to an electric vehicle (EV) to cut their fuel bills upon the introduction of the fuel subsidy rationalisation.
Kenanga Research anticipates a short blip before reaching a stronger fourth quarter (4Q24) on higher automotive sales volume driven by year-end promotions.
Its 2024 forecast of new vehicle sales in Malaysia, or total industry volume (TIV), that was maintained at 800,000 units (flat year-on-year (y-o-y)) is proving to be not aggressive, as the Malaysia Automotive Association (MAA) had also in November revised upward its target to this level.
TIV growth is backed by strong and sustained demand in the affordable segment, attractive new launches, softer-than-expected impact from e-invoicing, and a downtrading trend by mid-market buyers.
Its sector top pick is MBM Resources Bhd
, for which it has an “outperform’’ call with a target price (TP) of RM6.80 a share.
It said the stock was a good proxy to the affordable and fuel-efficient Perodua brand besides offering an attractive dividend yield of about 7%.
It said MBM Resources had strong earnings visibility backed by an order backlog of Perodua vehicles of more than 90,000 units (almost a third of its 2024 target sales of 350,000 units).
It also expects MBM Resources to benefit from the slew of new launches planned for Perodua as usually new models fetch higher margins.
It will also benefit from the expansion of its dealership offerings through the Jaecoo brand and downtrading trend by mid-market buyers could drive a better demand for its affordable Perodua brand and the value-for-money Jaecoo brand.
Kenanga Research said it may switch its top pick to Hong Leong Industries Bhd (HLInd) as MBM Resources’ share price has almost reached its target price and could have limited upside.
HLInd has ample production capacity to absorb the rising demand for motorcycles, especially with the upcoming targeted fuel subsidy rationalisation, it said.
It added that vehicle sales will also be supported by new battery electric vehicles or BEVs that enjoy sales and service tax exemption and other EV facilities incentives up until 2025 for completely built-up and 2027 for completely knock down units.
For 3Q24, the sector’s earnings delivery versus Kenanga Research’s expectations saw a slight improvement in the recently concluded 3Q24 results season with 14%, 71% and 14% respectively coming in above, within and below, as opposed to 14%, 57% and 29% coming in above, within and below expectations a quarter ago.
