KUALA LUMPUR: Despite the expected strong total industry volume (TIV) recovery until mid-2022, Hong Leong Investment Bank Research (HLIB) is maintaining its “neutral” rating on the auto sector.
The research house expects TIV to drop post-sales and service tax exemption (SST) exemption expiry alongside the current ongoing global microchip supply issue.
“Nevertheless, we advise investors to accumulate MBMR (BUY; TP: RM4.80) and DRB (BUY; TP: RM2.30), as we expect national OEMs to triumph in the longer term with potential growth from new export markets.
“We also like Sime Darby (BUY; TP: RM2. 68) for its strong balance sheet and leverage to the China market rebound,” HLIB said in a report.
In November 2021, TIV was 58,700 units, a contraction of 7.5% on a month-on-month basis retracement affected by supply-related issues, but posted a marginal 1.9% year-on-year growth.
Year-to-date. TIV still dropped 4.2% to 441,100 units due to 2.5 months of inactivity during the Phase 1 lockdown from June to mid-August.
“We expect TIV to remain robust in coming months as supply chain normalises and OEMs maintain productions to fulfil the strong demand, driven by the further extension of SST exemption to mid-2022, but sales are likely to weaken in 2H22,” HLIB said.
The research house expects TIV to achieve another high level in December 2021 as OEMs accelerate their production levels to meet the current order backlog and year-end sales.
Nevertheless, it noted that the extension of SST exemption to June 30, 2022 has provided the industry some leeway to better plan their production line over a longer period as demand remains robust while supply is constrained by the on-going global microchip supply shortage in the near term.
“TIV for 2021 is expected to achieve 500,000 - 510,000 units,” it said.
