Auto sector sales to taper post-SST exemption

KUALA LUMPUR: Coming out of a fourth quarter that yielded sequential improvements to bottomlines, the auto sector is planning ahead for the scheduled end of the government's exemption on the sales and service tax (SST) in June 2022.

According to RHB Research, there is a pick up in bookings as the expiration date of the SST exemption looms but it is expected to slow in subsequent quarters.

"We gather that Perodua and Toyota have order backlogs of 3-4 months, while the general view for the other marques is that bookings are improving as we approach the end of the SST holiday," it said.

RHB maintained its 2022 forecast total industry volume at 540,000 units, and expects sales to taper off for a few quarters post SST re-imposition before resuming growth

Moving forward, RHB also expects marques to adopt a strategy of absorbing car price differences post-SST exemption, although this is likely to hurt margins.

It said this was owing to the price sensitivity on large-ticket items and production is unlikely to keep up with demand as consumers take advantage of the SST exemption.

"That said, industry players are likely to lobby for another round of extensions.

"It is possible for the SST reimplementation to be performed on a staggered basis, which should minimise price shocks and reduce the burden on margins," it added.

RHB maintained its "neutral" call on the auto and autoparts sector with key risks including shortages of key components and delays in new model launches, Covid-19 disruptions, the tightening of bank approvals for car loans as well as a sharp weakening of the ringgit.