Automotive sector

The automotive sector should rebound

PETALING JAYA: The outlook for the domestic auto sector is positive, supported by strong on-going bookings, support for demand from the tax exemption and historically low interest rates.

This situation will be further reinforced by the recovery of domestic consumption as employment conditions and household incomes improve.

MIDF Research predicts a more than 13% year-over-year (yoy) recovery in 2022, with total industry volume (TIV) at 575,000 units.

This assumes no further pandemic-induced lockdowns and on the back of strong pending orders, despite potential near-term weakness immediately after the tax holiday expires in June 2022.

Its TIV 2022 projection is at the lower end of the pre-pandemic range to reflect the current chip shortage situation and potential intermittent supply chain disruptions.

He said an additional six-month tax holiday should bring his forecast to around 595,000 to 605,000 units (up 17% to 19% year-on-year).

The potential upward revision to its projection echoes that of the Malaysian Automobile Associations (MAA), which indicates upside potential from its current target of 600,000 VITs for 2022 (up 18% year-on-year) if the tax exemption was extended.

He said the MAA would submit an appeal to the Department of Finance to further expand the sales tax exemption for new vehicles.

This is in light of the current supply shortage situation which has impacted the industry’s production capacity to meet the extended order backlog.

If this call is successful, it would be an additional positive catalyst for the automotive sector, which could further strengthen the projections, he said.

CGS-CIMB Research forecasts an improvement in sales volume from March 2022. Its checks with automakers revealed that industry demand remains strong.

He said, for example, Proton had over 60,000 reservations in February 2022, while UMW-Toyota had over 30,000 backorders.

Total industry volume increased 7.7% month-over-month from 43,448 units in January 2022 to 43,722 units in February 2022, leading to higher sales in the segment of passenger vehicles, which increased 15.3% month-on-month.

CGS-CIMB Research has a “neutral” stance on the sector while MIDF Research has a “positive” stance.

CGS-CIMB Research said the sector is trading at 14.7 times the 2022 price-to-earnings (P/E) ratio, slightly ahead of its target sector P/E of 14 times.