KUALA LUMPUR (June 19): Malaysia’s upcoming fuel subsidy rationalisation will likely hurt demand for mid-market cars though it would be business-as-usual for the lower-end segment, Kenanga Investment Bank said on Wednesday.

That would mean a “two-speed” automotive market for 2024, the research house said in a note, recommending that its client stay “neutral” on the sector. The middle-class may refrain from buying new cars and either settle on smaller ones or switch to electric vehicles with the fuel subsidy rationalisation in mind, it noted.

For now, the industry’s earnings visibility is still “good,” Kenanga said. Bookings backlog totalled 200,000 units at the end of May. More than half of the backlog is made up of new models, indicating the appeal of new models to buyers, the house said.

“This trend is likely to persist” throughout this year given a strong line-up of new launches, Kenanga said.

Data out on Wednesday show that Malaysia's total industry volume, or new vehicle sales, rose 9% year-on-year and 18% month-on-month to 68,665 units in May 2024. Sales in January-May totalled 328,901 units, an 8% growth when compared to the same period in 2023.

Total industry volume will likely fall this year to 740,000 units from the record-high 799,731 units in 2023, according to forecasts of the Malaysian Automotive Association, which represents more than a dozen domestic and foreign brands, assemblers, distributors and retailers.

Under the rationalisation announced earlier this month, diesel prices in Peninsular Malaysia will be floated and adjusted weekly, with the price per litre raised to RM3.35 at all retail stations from RM2.15 previously.

The subsidy rationalisation for RON95, the most widely-used petrol variant currently capped at RM2.05 per litre, is expected to follow suit. The government has also announced a slew of incentives to spur purchase of electric vehicles.

Vehicle sales will also be supported by new battery-powered electric vehicles that enjoy sales tax exemption and other incentives up until next year for imported units and 2027 for locally-assembled cars, Kenanga said.

Sales of electric vehicles have jumped from 274 units in 2021 to over 3,400 units in 2022 and 10,159 units in 2023. New registrations totalled 2,703 units for the January-April period, and appear on track to meet the national target for electric and hybrid vehicles of 15% of total industry volume by 2030, Kenanga noted.

The government’s pledge to enable charge point operators to secure faster approvals for installation also “provides comfort”, as currently only 3,951 charging stations have been built to-date, the research house added.

MBM Resources Bhd (KL:MBMR) is Kenanga’s top sector pick, citing its strong earnings visibility, proxy to mass-market Perodua brand and attractive dividend yield of about 7%. Shares of MBM Resources were up 2.7% to RM5.37 at noon. 

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