PETALING JAYA: The automotive sector will continue to be supported by resilient domestic demand driven by the civil servant salary increment and the introduction of higher minimum wages in 2025 that is expected to further stimulate vehicle purchases, says BIMB Securities.
The research house in a note to clients said it maintained the sector's total industry volume (TIV) forecast at 810,000 units in 2025.
This is driven by historical trends showing that TIV has historically grown following civil servant salary increments.
For instance, TIV grew by 7% year-on-year (y-o-y) in 2008 and 5% y-o-y in 2012, following civil servant salary hikes, it pointed out.
"These salary increments had a significant impact on disposable income, improving vehicle affordability and boosting automotive demand," BIMB Securities noted.
The upcoming civil servant salary adjustments, set to be rolled out in two phases, Phase 1: Dec 1, 2024 and Phase 2: Jan 1, 2026), are expected to have a similar impact.
The research house said Phase 1 should help sustain demand in 2025, while Phase 2 is anticipated to extend the growth trajectory into 2026.
Although the TIV growth will be gradual as salary adjustments take time to fully translate into enhanced affordability, BIMB Securities said the rising incomes, supportive government policies, and positive market sentiment position 2025 as a pivotal year for the automotive sector.
"This could mark the beginning of a new TIV benchmark, aligning with Malaysia’s broader vision of becoming a high-income economy," it added.
The local automotive sector recorded a steady performance in 11 months of 2024, with TIV reaching 731,534 units, reflecting a modest 1.4% y-o-y growth compared to 721,392 units in the same corresponding period in 2023.
Meanwhile, BIMB Securities said the RON95 subsidy rationalisation could drive shifts towards electric vehicles (EVs) and fuel-efficient vehicles.
"We anticipate that high-income earners from T15 households may take this opportunity to shift from traditional Internal Combustion Engine (ICE) vehicles to EVs, as the rising fuel costs make EVs, with their lower long-term operating costs, a more attractive option," the research house noted.
This shift is further supported by government incentives for EVs, such as tax exemptions and rebates, and the increasing emphasis on environmental sustainability.
According to BIMB Securities, the outlook for Malaysia's EV market remains positive heading into 2025.
It said rising fuel prices are enhancing the cost appeal of EVs, particularly among middle-income (M40) and lower-income (B40) groups.
Furthermore, market dynamics are expected to shift further with the entry of Proton and Perodua into the EV space.
However, despite these promising developments, BIMB Securities said structural challenges continue to persist.
The limited availability of charging infrastructure, with only 3,354 public charging points, and high upfront costs remain significant barriers to widespread EV adoption.
However, continued government intervention, including tax incentives, rebates, and grants for infrastructure development, will be essential in addressing these issues.
"Considering these factors, Malaysia’s EV market share is projected to grow from 2.5% to approximately 3.5% by the end of 2025.
"This growth highlights the nation’s steady transition toward electric mobility, supported by favourable government policies and increasing consumer demand," it noted.
In addition, the automotive industry in 2025 is set to unveil a range of exciting new models that cater to shifting consumer preferences and technological advancements.
Hence, BIMB Securities has reaffirmed its overweight stance on the automotive sector.
At this juncture, the research house maintains a buy call on Sime Darby Bhd
with a target price (TP) of RM2.60 and a hold call for MBM Resources Bhd (TP: RM5.50) and Bermaz Auto Bhd (TP: RM1.46) respectively.
Nonetheless, the downside risks remain, including rising interest rates, which could increase vehicle financing costs and reduce consumer demand and ongoing global supply chain disruptions.
