PETALING JAYA: New vehicle sales are expected to pick up significantly next year due to economic recovery post-pandemic, improved consumer spending and new car model launches, according to research analysts.
AmInvestment Research said in a report that the automotive sector’s total industry volume (TIV) is forecast to grow 12% year-on-year to 560,000 units in 2021, premised on projected economic growth of 6.5% to 7% in 2021.
The research unit also expected consumer spending to improve on big-ticket items, such as passenger vehicles, after the distribution of Covid-19 vaccines.
It also pointed out that TIV in the first quarter of 2021 is expected to be lower quarter-on-quarter, after a strong fourth quarter of 2021 as car buyers take advantage of the discounts before the end of the sales and services tax (SST) exemption on Dec 31,2020.
However, TIV sales volume in Q2,2021 should be stronger with an average of 45,000 to 50,000 units per month as a result of the gradual lifting of lockdowns, reopening of borders and travel restrictions which will improve businesses’ cash flows and reduce the disruptions to supply chains.
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AmInvestment Research’s economics team is also projecting a 0.6% decrease in unemployment rate to 4.4% in 2021, as well as the overnight policy rate (OPR) to be maintained at 1.75% for 2021.
The low interest rates will remain conducive for consumers to buy new vehicles.
Meanwhile, the further strengthening of the ringgit against the greenback will generally be positive for automotive players’ profit margins.
The research unit said a substantial portion of the cost of goods sold for Tan Chong Motor Holdings Bhd and UMW Holdings Bhd, at around 60% and 40% respectively, are denominated in the greenback.
AmInvestment Research has raised UMW Holding’s fair value to RM3.04 after increasing the Serendah land’s valuations to RM30 per sq ft (from RM15 per sq ft previously), a 25% discount to its last transacted price of RM40 per sq ft on July 6,2019; and increasing Perodua’s ascribed price-to-earnings ratio (PE) to six times (from eight times previously).
It also has “buy” calls on Bermaz Auto Bhd (fair value RM1.70 per share) and DRB-Hicom Bhd (fair value RM2.49 per share).
AmInvestment Research said it had an “overweight” rating on the automotive sector, and its top stock picks are MBM Resources Bhd (fair value RM4.32 per share) and Sime Darby Bhd (fair value RM2.87).
It said MBM Resources is currently undervalued, trading at 7.4 times financial year 2021 forecast earnings per share, compared to the sector average of 13.6 times.
The research unit said the group would sustain its strong performance as a direct proxy to Perodua’s continued dominance.
Also, Sime Darby should benefit from China’s improving auto sales as its market share for BMW cars is around 5% in the country.
