Automotive sector to see double-digit growth in TIV

PETALING JAYA: The automotive sector is expected to see a solid rebound, with total industry volume (TIV) likely to register a double-digit growth, in 2022.

As supply chain normalises and consumers take advantage of the sales tax exemption (SST), AmInvestment Bank Research (AmInvest) said the sector could see its TIV grow about 12% to 555,000 units next year from the forecast 495,000 units for 2021.

The brokerage maintained “overweight” on automotive, with Bermaz Auto Bhd (BAuto) and UMW Holdings Bhd as its top picks for the sector.

It ascribed a fair value of RM2 for BAuto and RM4.07 for UMW. “We expect TIV to continue to improve as the supply chain normalises and consumers take advantage of the SST exemption. With a high vaccination rate and the number of Covid-19 cases remain low, consumer confidence is expected to gradually improve,” AmInvest said.

It noted the cyclical sector would benefit from the economic reopening. “As businesses head towards normalisation, the reopening of the economy could benefit cyclical industries which had lost their appeal since the pandemic hit,” AmInvest said.

It noted that some of the sector’s heavyweights such as Sime Darby Bhd, UMW and BAuto were currently trading at inexpensive valuations of 12.4 times, 11.7 times, and 11.5 times forward earnings, respectively despite the improved outlook.

“The auto sector’s earnings are expected to rebound in 2022 as demand for new cars would be bolstered by the SST exemption – 100% and 50% SST exemption on locally-assembled and fully imported car models respectively – and improving consumer confidence as the economy gradually recovers,” AmInvest said. “Our base case assumption is there will be no lockdowns moving forward. We deem the national vaccination programme a success with 97.5% of adults in the country have been vaccinated as of end-December, followed by the declining trend of Covid-19 cases,” it added.

AmInvest said it expected a slew of new models to be launched in 2022, as distributors had held back their model launches due to the lockdowns in 2021.

“Among notable new models that we expect to see in 2022 are the all-new Honda Civic, Peugeot 2008, Kia Sportage and the long-awaited all-new Perodua Alza,” it said.

“The TIV also will be supported by recently launched volume models such as the Perodua Myvi facelift and Honda City Hatchback,” it added.

In addition, AmInvest said low financing rates would continue to be supportive of purchase of vehicles.

“According to our in-house projection, the overnight policy rate is expected be maintained at 1.75% at least in the first half of 2022, with the potential first rate hike of 25 basis points in the second half of 2022, more likely in the fourth quarter,” it explained.

“The low interest rates will remain conducive for consumers to obtain vehicle financing for the purchase of new passenger cars,” it said.