Auto sector expected to bounce back

PETALING JAYA: The prospects of the domestic automotive sector are positive, underpinned by strong outstanding bookings, demand support from the tax holiday and record low interest rates.

This will be further enhanced by the recovery in domestic consumption as employment and household income conditions improve.

MIDF Research is projecting a plus 13% year-on-year (y-o-y) recovery in 2022 total industry volume (TIV) to 575,000 units.

This is assuming the absence of any further pandemic-induced lockdowns and on the back of strong outstanding orders, notwithstanding potential short-term weakness immediately post-sales tax holiday expiry in June 2022.

Its 2022 TIV projection is at the lower end of the pre-pandemic range to reflect the on-going chip shortage situation and potential intermittent supply chain disruptions.

It said an additional six-month tax holiday is estimated to raise its forecast to about 595,000-605,000 units (plus 17%-19% y-o-y).

The potential upward revision to its projection echoes that of the Malaysian Automotive Associations (MAA’s), which is indicating potential upside to its current 2022 TIV target of 600,000 (plus 18% y-o-y) should the tax holiday be extended.

It said MAA will be submitting an appeal to the Finance Ministry to further extend the sales tax exemption for new vehicles.

This is in light of the on-going supply shortage situation which has impacted the industry’s production ability to meet the extended order backlog.

Should this appeal be successful, it would be an incremental positive catalyst for the auto sector, which could render further upside to projections, it said.

CGS-CIMB Research expects sales volume to improve from March 2022 onwards. Its channel checks with automakers revealed that industry demand remained strong.

It said, for example, Proton had over 60,000 bookings registered as of February 2022 while UMW-Toyota had more than 30,000 backlog orders.

Total industry volume grew 7.7% month-on-month from 43,448 in January 2022 to 43,722 units in February 2022 led to higher sales in the passenger vehicles segment, which climbed 15.3% mom.

CGS-CIMB Research has a “neutral’’ stand on the sector while MIDF Research has a “positive” stand.

CGS-CIMB Research said the sector trades at 14.7 times 2022 price-to-earnings ratio (P/E), slightly ahead of its target sector P/E of 14 times.