Few catalysts for automotive sector in 2024 after stellar 2023

PETALING JAYA: Except for the ongoing introduction of new models and brands, UOB Kay Hian Research (UOBKH Research) sees limited catalysts for the automotive sector in 2024.

“The Malaysian Automotive Association (MAA) achieved a record-breaking 2023 total industry volume (TIV) at 799,731 units, up 0.8% year-on-year (y-o-y).

“Hybrid and electric vehicle sales surged, with momentum expected to continue due to ongoing launches.

“We maintain our conservative view on the sector in 2024, anticipating a cyclical downturn resulting in negative TIV growth,” the research house said in a report.

It noted that the industry experienced a surge in sales in the last three months of 2023, driven by the fulfillment of bookings before the implementation of the sales and service tax (SST) this year, followed by new model launches from various brands and aggressive sales campaigns.

These factors contributed to sustained sales and kept the backlog of orders at a healthy level in 2023.

“Despite a conservative view expecting TIV to decline by 21% y-o-y, the contribution from national brands in the budget-friendly segment is expected to remain robust.

“Perodua and Proton both demonstrated double-digit sales growth in 2023, with Perodua experiencing a 17.1% y-o-y increase and Proton achieving 11% y-o-y growth.

“We gather that new bookings for Perodua models are robust, with undisrupted production despite Daihatsu’s safety scandal in Japan,” UOBKH Research added.

Additionally, it said improvements in the supply chain have resulted in shorter waiting periods of two to six months, depending on the models.

According to the research firm, sales of hybrid and electric vehicles (xEVs) have been improving over the years.

“This positive trend has resulted in marketshare growth from 2% in 2021 to 5% in 2023. We see this as positive progress towards achieving 15% of TIV by 2030 and 38% of TIV by 2040.”

As for the sector’s valuation, UOBKH Research said the sector is trading at forecast 2024 price-to-earnings of nine times, slightly above minus one standard deviation of 8.9 times.

“The valuation appears modest but is fair in our view, given that the sector’s catalysts are currently limited except for the ongoing introduction of new models and brands.

“Thus, we remain conservative with negative TIV growth of 21% y-o-y in 2024.”

The research firm has Berjaya Auto Bhd (BAuto) as its top sector pick.

“Following robust sales growth in the first half of its financial year 2024 (1H24), we assume that BAuto’s sales could achieve another record-breaking performance in FY24, backed by the fulfillment of healthy backorders and new orders for both Malaysia and the Philippines.

“Additional impetus will come from its attractive dividend yield of 9.3% (22 sen per share), including the expectation of a special dividend payout in 2H24.”

Key rating catalysts for BAuto include Mazda continuing to gain traction with a supported completely-knocked-down line-up of models and stable order book, sales improvement for Kia from a low base and an improvement in the company’s Philippine business with better product mix.
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