Automotive sector's TIV to be stronger in March, says RHB IB

KUALA LUMPUR (March 23): The total industry volume (TIV) of the auto and auto parts sector is expected to be stronger in March 2023, being the last month for carmakers to deliver sales and service tax (SST)-exempt orders.

In a note on Thursday (March 23), RHB Investment Bank Bhd (RHB IB) said while April’s TIV would likely soften month-on-month, it should nevertheless remain robust, as carmakers continue to deliver on customers’ orders, which are still healthy even in the absence of the SST exemption.

“With strong orders on hand and supply chain constraints largely resolved, we think that auto companies have earnings visibility for 2023.

“As input costs will likely remain steady from the fourth quarter of 2022's levels, and gradually decline (with falling raw material costs and easing supply tightness), the orders should translate into deliveries and earnings," RHB IB said.

As such, the investment bank maintained its "overweight" call on the sector, with top picks including Bermaz Auto Bhd and UMW Holdings Bhd.

Key risks to its recommendation include softer-than-expected orders and deliveries, and the resurgence of supply chain issues.

Meanwhile, in a separate note, Kenanga Research said the TIV of 112,128 units in the first two months of 2023 was within its expectations at 16% of its full-year projection of 720,000 units.

It noted that the TIV was underpinned by strong delivery of backlog orders in February, on increased working days versus the month before, due to the Chinese New Year holidays.

Besides, it said new bookings remained strong due to new launches, especially the all-new Axia, which racked in 27,000 units in new bookings.

Its projection implies that the TIV for 2023 would be sustained at the record 2022 level of 720,000 units, versus a more conservative forecast of 650,000 (-9.8%) by the Malaysian Automotive Association.

“This will be underpinned by a pause in overnight policy rate hikes and stable new car prices, thanks to the deferment of new excise duty regulations that could have resulted in prices of locally assembled vehicles increasing by 8% to 20%, and a healthy industry booking backlog of 350,000 units as at end-February 2023," said the research firm.

The research house also maintained its "overweight" call for the sector, with top picks including MBM Resources Bhd and UMW.