Affordable mid-range cars see strong sustainable demand

PETALING JAYA: Strong sustained demand in the affordable car segment, new launches, buyers down-trading trend to mid-market models and forward buying interest on the deferment of new excise duty regulations to end-2025, are expected to support total industry volume (TIV) growth in the automotive sector.

Kenanga Research said its 2025 TIV forecast of 805,000 units or down 1% year-on-year (y-o-y), is a tad above the forecast of 780,000 (down 4.4%) by the Malaysia Automotive Association underpinned by the aforementioned factors.

In the recently concluded second quarter of 2025 (2Q25) results season, the research house said the sector’s earnings delivery (versus its expectations) saw significant turnaround as the non-auto segment outpaced the auto segment’s recovery.

The non-auto segment and auto segment came in 43% above and 57% within expectations, respectively, compared with the previous quarter when 14% came in above, 29% within and 57% below expectations.

“The key changes from a quarter ago include Sime Darby Bhd’s industrial segment being uplifted with the price revision by Caterpillar which started in July.

“Also, DRB-Hicom Bhd’s banking segment recovered strongly on higher financing income, both outpacing their respective auto segment business which was affected by the rising competition in the mid-market segment,” the research house said in a report on Thursday.

Kenanga Research said Hong Leong Industries Bhd, which it has sole coverage, had beaten its forecast with yet another set of strong results on a record year-end performance, driven by higher production volume for all new motorcycle models, price hikes and a shift toward premium products with strong margins.

“For the next three years, it plans to launch seven new models which are expected to boost volume and margins that we have not factored into our forecasts pending the official launch to get the better sense of demand for each mode,” the research house said.

As for Sime Darby, Kenanga Research said the company’s full-year results had exceeded its expectation largely from higher-than-expected industrials profit as parts price normalised after old and cheaper stocks depleted.

“This recovery in its industrial segment just got underway in June 2025. With the uncertainty over, its industrial segment was recently uplifted with the price revision by Caterpillar,” the research house pointed out.

Nonetheless, Sime Darby’s automotive segment is dragged down by the losses in its China market which is only expected to recover gradually.

This is in line with China’s anti-involution campaign, but the absence of electric vehicle rebates also hurt its sales and margin.

DRB-Hicom had beaten the research house’s expectation largely due to higher-than-expected profit recognition for its banking segment which more than offset the reduced profit from automotive segment, wider losses at postal, services and properties segment as well as lower tax.

However, Kenanga Research said the company is facing rising competition in the automotive segment especially within the current mid-market segment of Proton Holdings Bhd, and uncertain outlook for its other segments.

“MBM Resources Bhd continued to ride on Perusahaan Otomobil Kedua Sdn Bhd’s resilience sales volume at 166,188 units (down 2% y-o-y),” it added.