KUALA LUMPUR (July 24): Hong Leong Investment Bank (HLIB) Research has maintained its "neutral" call for the automotive sector, and maintained its total industry volume (TIV) expectations.

This came after the Malaysian Automotive Association (MAA) reported a slower TIV of 61,200 units adjusted for June 2023, due to the normalisation of sales post ending of the Penjana sales and service tax.

Meanwhile, it noted that newer electrical vehicle players including Tesla, BYD, Haval, Netta and Chery may pose a threat to current non-national original equipment manufacturer (OEM) incumbents.

HLIB reaffirmed its "neutral" call on the automotive sector, with its top picks including DRB-Hicom Bhd with a "buy" call and a target price (TP) of RM2.18, followed by MBM Resources Bhd ("buy", TP: RM4.80).

In a research note, analyst Daniel Wong said that despite the slower TIV in June, the MAA showed year-to-date TIV growth of 10.3% year-on-year (y-o-y) to 366,000 units because of the low-base effect from the same period of last year, due to floods in Shah Alam and supply chain shortages.

The MAA also revised up its 2023 TIV expectations to 725,000 units from 650,000 units, he added.

However, Wong noted that his TIV expectations for 2023 remained at 700,000 units, lower by 2.9% y-o-y due to high industry order backlogs of over 300,000 units offset by attractive new launches.

He also noted that TIV is expected to drop after fulfilling the current huge backlog orders of 300,000 units.

Nevertheless, he advised investors to accumulate MBM and DRB stocks, as he expects national OEMs to triumph over the longer term with potential growth from new export markets.

“Both national OEMs continued leading the market with 61.3% market share in the first half of 2023, versus 58.0% in 2022 and 59.4% in 2021,” he said.

In morning trade on Monday (July 24), DRB’s share price had risen one sen or 0.69% to RM1.46, with a market capitalisation of RM2.82 billion.

MBM decreased by one or 0.29% to RM3.44 a share, valuing the company at RM1.34 billion.