PETALING JAYA: The second half of 2022 (2H22) is expected to be bumpy for automotive players, with lower sales and margin compression being among the prime challenges.
RHB Research, which maintained a “neutral” view on the sector, said 2H22 is likely to be weaker after the sales and service tax (SST) exemption expires in June.
The first six months of this year appears to be favourable to carmakers as new vehicle sales or total industry volume (TIV) is projected to remain strong, driven by the SST-holiday and robust order backlogs
“We understand that some industry players are lobbying for another round of extension and s staggered end to the SST-exemption.
“However, in our view, another extension is unlikely, which may leave some marques absorbing the SST and provide promotions to buoy sales, at the expense of margins.
“Moreover, should costlier raw materials translate into higher prices of future launches, sales volume could face further downside risks. If the distributors do not pass on the higher input costs, margins may face a further downward pressure,” the research house said in a note yesterday.
RHB Research pointed out that other downside risks that may hamper the automotive sector’s recovery include persistent shortages of key components and delays in new model launches.
With a mutating Covid-19 virus, it said disruptions to operations could not be ruled out going forward.
“Other downside risks include the tightening of bank approvals for car loans and a sharp weakening of the ringgit,” it added.
For the full year, RHB Research has retained its TIV forecast of 540,000 units.
For comparison, the domestic automotive industry recorded a TIV of 508,911 units in 2021, representing a drop of 3.9% from the previous year.
In February, the automotive sector registered a TIV of 43,722 units, up by 0.6% year-on-year (y-o-y) and 7.7% month-on-month (m-o-m).
The m-o-m increase was mainly driven by Proton and Honda as most other marques saw dips.
The February TIV did not include BMW and Volkswagen. Proton’s new vehicle sales in February jumped by 109.4% m-o-m to 9,039 units. However, on a year-on-year basis, the sales volume tumbled by 22.7%.
RHB Research noted that Proton’s sales for January and February 2022 declined by 24% or 4,295 units as production fell 18% due to the floods last December.
The lower production had in turn disrupted the supply of components from vendors in Klang Valley.
Nevertheless, for the first two months of the year, national carmakers controlled slightly over 57% of the local market share with Perodua contributing 41.4% and Proton, 15.8%.
Honda’s sales were up by 56% m-o-m to 6,026 units. On a year-on-year basis, the number of vehicles sold rose by 37.3%.
“Among the non-national marques, Toyota continued to lead with a 16.6% local market share, while Honda trailed at 11.7%,” said the research house.
