KUALA LUMPUR (Sept 22): RHB Investment Bank Research has maintained its “neutral” rating on the automotive sector and said that in light of the strong year-to-date (YTD) total industry volume (TIV) and easing supply chain conditions, it is raising its 2022 TIV forecast to 650,000 (Malaysian Automotive Association: 630,000) from 615,000, as it expects carmakers to continue ramping up production to fulfil the months-long order backlog.

In a sector update on Thursday (Sept 22), RHB said its top picks were Bermaz Auto Bhd and Sime Darby Bhd.

The research house said August total production volume rose 33% month-on-month (m-o-m), mainly led by Perodua (+61% m-o-m) and Proton (+22% m-o-m).

It said Perodua's August production of 27,000 surprised the research house, as it implies a 94% utilisation rate, even amidst a continued labour shortage at its component vendors.

Meanwhile, it said Proton’s strong production was mainly led by the Proton Saga production (+83% m-o-m), which was recovering from lacklustre volumes in recent months.

Outlook

RHB said orders are gradually recovering m-o-m and should continue to do so, as consumers adapt to the post-sales and services tax prices.

“With Budget 2023 coming up, we expect the government to provide greater clarity on the excise duty reform that is meant to be implemented in 2023.

“In line with its sustainability agenda, the government may also introduce incentives to spur the domestic adoption and production of electric vehicles (EVs), which may include: i) incentives to spur EV charging, ii) incentives to spur original equipment manufacturers’ local assembly of EVs, and iii) a longer tax-free period for the purchase of EVs,” it said.

The research house said it was still "neutral" on the sector despite expectations of a strong second half of 2022 (2H22), as it remains cautious on softening car sales in 2023, weighed by macroeconomic headwinds.

“Our top picks are Bermaz Auto and Sime Darby.

“Downside risks that may hamper the sector's recovery include persistent shortages of key components and delays in new model launches. Other risks: Tighter bank approvals for car loans and a weaker ringgit,” it said.