Local auto industry to be affected by luxury tax, higher service tax in 2024, says Maybank IB

KUALA LUMPUR: Malaysia's automotive industry is expected to be affected by the implementation of the High-Value Goods Tax (HVGT) and higher service tax rates this year, according to Maybank Investment Bank (Maybank IB).

The investment bank said the luxury tax, to be implemented from May 1, could impact premium vehicle sales.

Other factors to watch out for that could affect industry players are targeted subsidy rationalisation and higher service tax rates, which cover vehicle repair and maintenance services, it said in a research note today.

"(These) are expected to increase the costs of vehicle ownership and impact new car sales,” it said in a research note today.

Maybank IB also highlighted the rising trend from dealership to the agency model, driven mainly by Western carmakers' plans to establish a stronger presence in South-East Asia.

It anticipated the total industry volume (TIV) to stabilise at 650,000 units in 2024, a 19 per cent decrease year-on-year (y-o-y) after two consecutive record years of growth (2022: up 42 per cent, 2023: up 11 per cent).

Maybank IB said the two key themes to watch for in 2024 are the increasing trend of agency model adoption and the acceleration of electric vehicle (EV) transition as the country has emerged as an increasingly attractive destination for foreign direct investments (FDIs) from global automakers establishing their regional headquarter or EV hubs.

This includes prominent names such as Volvo, Stellantis, Tesla, and Chery.


Meanwhile, it said, carmakers such as Mercedes-Benz, BMW, Porsche, Audi, and Dong Feng have announced local assembly plans for vehicles targeting both domestic and export markets.

"The influx of FDIs is expected to have a positive long-term impact on the industry, contingent on the position of auto players in the supply chain.

"However, for local players in the production and distribution chain, we anticipate intensified competition in 2024, potentially impacting their margins. This consideration takes into account numerous new product launches, including scheduled EV brands or models throughout the year,” it said.

As such, Maybank IB maintained a "neutral” rating on the automotive sector.

It favoured Bermaz Auto Bhd (Bauto) for its strong fundamentals and resilient financial standing, healthy free cash flow, and an attractive dividend yield offering of over eight per cent.

"Despite our expectation of a y-o-y normalisation in TIV, our projection for Bauto's earnings growth for financial year ending April 30, 2024, remains well-supported by sustained strong demand for Mazda.

"Furthermore, Bauto's earnings would benefit from an increasing completely knocked down mix in its portfolio. Potential addition of a new EV distributorship may further enhance its portfolio," it said.
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