KUCHING: The overall macroeconomic environment remains favourable for the automobile sector this year, helped by a 6.1 per cent forecast rise in consumer spending, 5.4 per cent gross domestic product growth, low borrowing costs and a strong pipeline of attractive new models.
That being said, the sector’s industry growth is still being inhibited by the high absolute prices of cars in general and high household debt ratios.
RHB Research Institute Sdn Bhd (RHB Research) analyst Alexander Chia noted yesterday that data from the Malaysian Automotive Association (MAA) suggested that industry sales were progressing as expected with year to date sales up 17.8 per cent year on year (y-o-y) to 100,042 units.
“The sales performance and anecdotal evidence suggest a robust undertone for consumer spending, especially in the mid to high end of the market spectrum.
“The pipeline for new model launches remains healthy and we count 24 launches of new and facelift vehicle variants in the first quarter of 2013 (1Q13),” he said while revealing RHB Research’s total industry volume 2013 forecast as 637,000 units, up 1.5 per cent y-o-y.
Chia opined that the dearth of all-new models from the national manufacturers and increasingly competitive pricing strategies adopted by some non-national players meant that Proton’s and Perodua’s market shares would continue to be under
pressure.
In addition, while the increasing affluence of national car owners resulted in many ‘trading up’ to more expensive non-national alternatives, the lower end of the market continued to be squeezed by stricter hurdles to qualify for financing, he said.
Meanwhile, the yen had depreciated 13.7 per cent against the ringgit since the start of the year and RHB Research had accordingly revised its average 2013 and 2014 ringgit to 100 yen assumption to RM2.96 and RM2.77 (from RM3.30 and RM3.20) respectively.
Chia stated that sustained weakness in the yen would benefit Tan Chong Motor Holdings Bhd (Tan Ching Motor) while both MBM Resources Bhd and UMW Holdings Bhd would also benefit through their associate stakes in Perodua.
Chia remained “wary of a potential sales blip in the coming months that could be sparked off by the impending general election” with the risk being that “potential buyers could adopt a wait-and see stance that would disrupt the recent positive sales trends.”
“While the strategic thrust of the forthcoming new National Automotive Policy has been well-signalled to the market, its stance on the automotive duty structure going forward is unclear.”
He pointed out that the new and used car markets had a symbiotic relationship and a reduction in new vehicle prices would not necessarily result in higher vehicle sales; residual values of used vehicles would be affected by the lower new car prices.
With the equity value in used vehicle residuals typically being a significant component of the down payment for a new vehicle, a sharp contraction in used car residuals would leave some car buyers in the position where they would be unable to fully fund the new vehicle of their choice.
“The issue is compounded by the extended hire purchase financing period of up to nine years.
“A contraction in used car residuals could leave many borrowers, especially those in the lower income segment, in a negative equity position, where the old vehicle is worth less than the amount of the outstanding loan.
“Accordingly, we continue to view potential regulatory change as a significant risk for the sector going forward,” Chia stated while revealing Tan Chong Motor and DRB-Hicom Bhd as RHB Research’s top stock picks in the sector.