KUALA LUMPUR (July 18): Hong Leong Investment Bank (HLIB) Research maintained its 'neutral' rating for the Malaysian automotive sector, saying it expects total industry volume (TIV) to remain strong, supported mainly by Perodua’s sustained sales deliveries to clear an order backlog of 100,000 units and still healthy new order intake.

In a note on Thursday, the research house upgraded its forecast to 760,000 units (from 720,000) for 2024.

The research house has named MBM Resources Bhd (KL:MBMR) and DRB-Hicom Bhd (KL:DRB) as its top picks.

HLIB said that in the first five months of the year, national original equipment manufacturers (OEMs) continued to lead the market, with a combined 63.1% market share, as Perodua - under Sime Darby Bhd (KL:SIME) and MBM - captured a larger slice of 44.4% (from 40.6%), while Proton's (DRB) share slipped marginally to 18.7% (from 20.6%).

HLIB said within the foreign OEM segment, Toyota - UMW Holdings Bhd - remained the market leader with a 11.7% share (from 13.2%), followed by Honda (DRB) with 9.9% (from 9.5%). Mazda - Bermaz Auto Bhd (KL:BAUTO) - had a 2.2% market share, followed by Nissan - Tan Chong Motor Holdings Bhd (KL:TCHONG) - at 1.1%.

“There were increasing new entries by Chinese OEMs at pricing of RM100,000 to RM200,000,” the research house said.

Meanwhile, HLIB said the order backlog had overall dropped to around 150,000 to 160,000 units (from over 220,000 units as at end-2023), with the majority of the volume being attributed to Perodua at about 100,000 units.

“We believe Perodua could sustain its sales volume until year end (targeting 330,000 units for 2024), as the national OEM continued to maintain its wave of new order intake and production volume for the year.

“We upgrade our TIV forecast for 2024 to 760,000 units (from 720,000), a drop of 5% year-on-year, mainly to account for stronger-than-expected Perodua sales volume for the year, and potentially more active sales and promotional activities by various OEMs to sustain their sales volumes,” it said.

HLIB said the government continues to introduce more electric vehicle (EV) friendly policies to push for higher EV adoption.

The research house said EV sales increased to 13,144 units in 2023 (from a mere 3,017 units in 2022) or 1.6% of total registered car sales volume.

It said EV sales were mainly driven by BYD, BMW, Tesla and Mercedes. In the first half of the year, EV sales totalled 10,644 units (or 2.6% market share), led by BYD, Tesla and BMW.

“We anticipate continued EV sales growth in coming years, driven by attractive government policies, improved EV infrastructure, and aggressive new EV model launches, with attractive promotional activities by existing OEMs and new entrances.

“However, we believe overall EV adoption will still be relatively immaterial (in terms of market share) in the near term, due to its relatively higher price (RM100,000 and above) and the lacking [but improving] EV infrastructure,” it said.

The research outfit added that for national OEMs, Proton has revealed plans to introduce EV models by end-2024 under a new brand known as 'e.MAS', while Perodua is only expected to launch EV models in 2025.

HLIB said while the US dollar continued to stay stubbornly high in the first half of 2024, against house and consensus expectations (due to the still high inflationary index), and has only recently tapered down to a US dollar-to-ringgit exchange rate of 4.70, it still anticipates the local note to improve to 4.60 by end-2024 (with upside bias).

“On the other hand, the ringgit has appreciated against the Japanese yen within the same period, to now RM2.95 (against ¥100), affected by the still large interest differential and increasing trade deficit.

“We expect automotive related companies to benefit from the anticipated ringgit recovery against the US dollar and the still low yen.

“Major OEMs that have major exposure to the US dollar include Toyota (UMW) and Nissan (Tan Chong), while for the yen, it includes Honda (DRB) and Mazda (BAuto),” the research house said.

https://www.theedgemarkets.com/node/719442