Malaysia’s automotive sector still lags major organic catalysts and as such, analysts pegged a ‘neutral’ view on the sector’s outlook next year. — Reuters photo
KUCHING: Malaysia’s automotive sector still lags major organic catalysts and as such, analysts pegged a ‘neutral’ view on the sector’s outlook next year.
In a report, the research arm of AmInvestment Bank Bhd (AmInvestment) pointed out that the sector still lags major organic catalysts although 2018 received a boon from the tax holiday in June to August, which accounted for 40 per cent of the first 10 months of the financial year 2018 (10MFY18) total industry volume (TIV).
“We believe the long-term catalysts for an upgrade on the sector are better consumer sentiment to drive demand, for companies to be in a more solid financial position to catalyse demand with new models and better market visibility, and a better macroeconomic environment to ease the obtaining of auto financing,” it opined, noting that more car loans were approved this year (the approval rate averaged 59 per cent in 9M18 compared with 53 per cent in 2017), but this was largely due to the last four months to September when the rate shot up to as high as 71 per cent.
Meanwhile, the research team said it forecast a two per cent TIV growth to 600,000 units in 2019 (from FY18F: two to three to 588,000 to 594,000).
It noted that there is a slate of new models that coincide with the pre-Chinese New Year buying would generate excitement at the beginning of the year in an otherwise mellow market.
For the year ahead, it predicted that margin-oriented SUVs are expected to lead a sea change in national players.
“Both national carmakers will launch their first SUVs with different priorities. Perodua will focus on sales while Proton will focus on improving the consumer perception. Proton will rely on the SUV to test the various operational reforms and processes that are being introduced to win back consumer confidence.
“We believe that the X70 requires a strong success story in the home market before expanding regionally. Perodua will follow suit and target the more affluent segment where the financing options are said to be more secure. Both players are looking to position themselves on more formidable ground by reducing their dependence on volume over time,” AmInvestment said.
Aside from that, it projected that the dollar to ringgit rate could be 4.12 and the OPR rate to be retained at 3.25 per cent for next year.
Hence, it said: “ The weakening ringgit presents an immediate challenge to the margins of UMW Toyota, Tan Chong Motor and Pecca Group. These three companies have a relatively higher exposure to the.
“We believe automakers will need to time their launches of new models well to capture higher sales and place priorities on sales of better margin vehicles. This is to mitigate any margin erosions from the weaker ringgit and prevent a repeat of the situation in 2016 to 2017.
“To this end, UMW has lined up the Toyota Vios to push their sales volume at the open of the year. This will be followed by Toyota Yaris (by end-1H), an affordable hatchback that will also be assembled at its new plant in Shah Alam. For Pecca, we expect its automotive leather prices to remain stable.
“As for Tan Chong, the group may launch new Nissan models next year. It will retain its priority to focus on margins rather than volume while actively managing its inventory and debt levels. Other launches to keep an eye on include the Mazda CX-8 and Mazda 3 scheduled to come later in the year.”
As for the development of the National Automotive Policy (NAP), the research team noted that the policy has been pushed to early 2019.
“The government recently indicated that would publish the next NAP in the first quarter of 2019. This marks the third time it is delayed. The NAP will serve as a roadmap for the sector in the next four years.
“We understand it will continue to emphasize energy efficient vehicles, while focusing on four key areas: connected mobility, Industrial Revolution 4.0, new generation vehicles and artificial intelligence. The new NAP will also factor in the plan for the third national car, which has reportedly received over 20 proposals and will be led by the private sector.
“We understand that the NAP could also set a bigger stage for local suppliers to serve export markets as there are fewer barriers to entry for auto components compared to CBU cars,” it added.