Upward trajectory for TIV in auto sector

PETALING JAYA: Kenanga Research has revised upward its forecast for the total industry volume (TIV) within the automotive sector for 2023 by 7% to 770,000 vehicles from the previous estimate of 720,000 units.

This adjusted forecast for new vehicle sales surpasses the 725,000 units projected by the Malaysian Automotive Association.

In a report, the research house attributed the upward revision to stronger-than-expected sales volumes across the board, particularly in the affordable segment, with a notable impact on brands such as Perodua.

In October 2023, the TIV within the automotive sector regained momentum, reaching 74,896 units, second-highest monthly TIV for the year, after 78,849 units sold in March.

The TIV in October reflects a month-on-month growth of about 10% and year-on-year (y-o-y) increase of 21%.

Kenanga Research attributed this growth to vigorous promotional campaigns and an improved supply of automotive parts, particularly benefiting Perodua.

Meanwhile, for the first 10 months of 2023, the automotive industry achieved a TIV of 646,840 vehicles, beating the research house’s expectations.

Looking ahead, Kenanga Research believes the strong October 2023 TIV momentum will extend into Nov 2023.

“We believe a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy,” it noted.

Additionally, the brokerage said that the industry’s earnings visibility remains strong, backed by a booking backlog of 235,000 units, which will keep the industry busy for another the coming months.

Projecting further into the future, Kenanga Research believes that the TIV for 2024 is expected to ease y-o-y to about 710,000 units, mainly due to the government’s consideration of fuel subsidy rationalisation and a potential hike in new car prices from the increase in sales and services tax to 8% from the current 6%.

The research firm highlighted that while fuel subsidy rationalisation may impact diesel powered vehicles, the absence of explicit mention regarding RON95 petrol is viewed positively for the sale of passenger cars, given that most passenger cars are powered by petrol.

“We now see greater opportunities in the affordable segment as it will be less affected by the introduction of targeted fuel subsidies that may dent the demand for mid-market vehicles as it will erode spending power of the M40 group,” Kenanga Research added.

The research house, which maintained its “overweight” call on the automotive industry, remains optimistic about the sector due to the strong consumer confidence supported by a stable economy and a healthy job market.

Furthermore, Kenanga Research is of the view that the affordability of motor vehicles is supported by stable new car prices, credited to the deferment of new excise duty regulations that might have otherwise caused between 8% and 20% increase in prices for locally assembled vehicles.

This, coupled with the potential for reduced hire purchase costs through the introduction of the reducing balance method in interest charge calculations, contributes to an optimistic outlook.

The introduction of attractive new models further strengthens this positive sentiment, it added.

Kenanga Research has named MBM Resources Bhd, which has a 20% stake in Perodua, as its top pick within the sector, as it focuses on the affordable segment and offers an attractive dividend yield of about 11%.

In light of Perodua’s robust performance, Kenanga Research has increased MBM’s financial year 2023 (FY23) and FY24 net profit forecast by 3.4 and 3%, respectively.

Consequently, the target price for MBM has also been raised by 3.2% to RM4.85 a share from RM4.70.