KUALA LUMPUR: The automotive sector's total industry volume (TIV) is expected to decline by nine per cent year-on-year (YoY) in 2024, according to CIMB Securities. 

This is due to the resumption of sales tax, higher fuel costs should the government proceed with its subsidy rationalisation programme in the second half of 2024 (2H24), and rising competition from the premium segment following the influx of new electric vehicle (EV) players in the market. 

This is partly offset by new launches, especially in the EV segment, and an accommodating interest rate environment to sustain TIV sales in 2024. 

Nevertheless, the investment bank said its 2024 forecast TIV of 727,000, will still be marginally higher than 2022 levels of 721,000.  

"Moreover, we expect the national brands to fare relatively better, with a 4.4 per cent decline compared to a wider 16 per cent YoY drop for the non-national segments due to the affordable offerings and broader market presence.  

"Our 2024 TIV forecast is on the upper end of the street's estimates, which range between 625,000 and 720,000 units.  

"The higher YoY TIV delivery in the first quarter of 2024 (1Q24) may not lead to sector earnings outperformance as it is negated by forex impact due to weaker ringgit against US dollar," it said in a note. 

Meanwhile, CIMB expects the Malaysian automotive sector's net profit to decline 14 per cent YoY in 2024 compared to an increase of 29 per cent in 2023, mainly due to lower sales volumes.  

However, it said automotive companies with overseas exposure like Sime Darby Bhd and Bermaz Auto Bhd will be able to record higher overseas contributions, which will offset the weaker sales volumes in 2024. 

The investment bank has upgraded the sector's rating to "overweight" due to its undemanding valuations and strong dividend yields.  

According to CIMB, its current top pick in the automotive sector is Bermaz Auto due to its attractive FY24 to FY25 forecast dividend yields of nine per cent to 9.6 per cent and a strong net cash position of RM395 million. 

Moving forward, it said potential catalysts for the automotive sector include higher contribution from its local assembly programmes with the addition of Kia and as a proxy for favourable foreign exchange movements following the depreciation of the Japanese yen against the ringgit. 

"Key catalysts for the sector are the strengthening of the ringgit vs. US dollar and Japanese yen, a reduction in interest rates, and favourable government policies to revive domestic demand.  

"The ringgit's depreciation versus the US dollar and Japanese Yen, interest rate hikes, and deteriorating consumer sentiment from the subsidy rationalisation programme and new taxes are key downside risks to our call," it noted. 

In March 2024, the TIV grew 11.3 per cent month-on-month (MoM) to 71,052 units, driven by robust demand for both passenger vehicles (PV) and commercial vehicles (CV), which surged 10 per cent and 30 per cent, respectively.  

Concurrently, the total production volume (TPV) in March also grew, but at a slower rate of two per cent MoM, to 66,923 units.  

The Malaysian Automotive Association (MAA) attributed the higher MoM TIV to a rush in deliveries for companies closing their financial year-end on March 31 and the impact of Hari Raya campaigns.  

However, MAA expects a lower TIV delivery in April due to fewer operating days during the Hari Raya holidays. 

On the other hand, TIV grew 4.5 per cent YoY to 201,358 units in 1Q24, mainly driven by higher sales from the PV segment, which rose 7.1 per cent YoY. 

CIMB attributed the stronger PV sales to resilient demand from the market leader, Perodua, with 9.3 per cent YoY growth in 1Q24 on the back of robust backlog orders.

https://www.nst.com.my/business/corporate/2024/04/1043913/cimb-securities-sees-total-industry-volume-declining-9pc-year