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4Q21 results saw sequential improvements,resulting in FY22-23F sector earnings being lifted by 7% and 5%. The recovery momentum going into 2022 was marked by a setback – Jan 2022’s TIV saw a slow start post Dec 2021’s promotional campaigns and supply chain issues due to the recent floods. Despite that, bookings are picking up as we approach the end of the Sales & Services Tax (SST) exemptions. We maintain 2022F TIV at 540,000 units, and expect this to taper off for a few quarters post SST re-imposition, before resuming growth. Stay NEUTRAL.
4Q21 results were generally ahead of expectations, helped by overall pent-up demand post economic reopening and the recognition of investment tax allowances. MBM Resources and UMW saw positive revisions in earnings and TPs during the quarter. Sime Darby booked 2QFY22 (Jun) core earnings that were within our estimate, but missed that of the Street. Bermaz Auto is set to release its results on 10 Mar.
Robust order backlogs. We gather that Perodua and Toyota have order backlogs of c.3-4 months, while the general view for the other marques is that bookings are improving as we approach the end of the SST holiday. Furthermore, for Perodua and Toyota, it was highlighted that sufficient component supplies (including semiconductor chips) have been secured to meet their 2022 sales and production targets. We believe that production will pick up pace in the coming months, to cater for robust demand and meet delivery timelines before the end of the SST exemption in June – barring no further disruptions to operations.
Further extensions of SST exemptions? Given the price sensitivity of consumers on large-ticket items – and the case where production is unlikely to keep up with demand in order for buyers to take advantage of the SST exemption – we believe the likely strategy that marques will adopt is for distributors to absorb car price differences post SST exemption to manage sales, which is likely to hurt margins. That said, industry players are likely to lobby for another round of extensions. It is possible for the SST reimplementation to be performed on a staggered basis, which should minimise price shocks and reduce the burden on margins.
Interest rate implications. RHB economists expect Bank Negara Malaysia (BNM) to commence its gradual hiking cycle in 2H22, with the first hike being at 25bps. This will be followed by a 50bps hike in 2023. Assuming a base 2.75% hire purchase interest repayment rate, a 25bps hike will lead to a 1-2% increase in monthly repayments, based on our calculations.
Downside risks that may hamper the sector’s recovery include persistent shortages of key components and delays in new model launches. With a mutating COVID-19, we cannot rule out disruptions to operations going forward. Other downside risks include the tightening of bank approvals for car loans and a sharp weakening of the MYR.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....