KUCHING: The automotive sector earnings are expected by analysts to improve from the second quarter of 2017 (2Q17) onwards while others’ view the sector as being conservative.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), sector earnings should improve from in 2Q and 3Q driven by the total industry volume (TIV) improvement of key players and a stronger ringgit from April 2017 onwards.
However, MIDF Research noted that there might be some delay in the impact of the stronger ringgit kicking in given one to two months forward purchases by players.
Nonetheless, players have generally reduced forward purchases to manage inventory levels, based on the research arm’s channel checks.
All the auto players under MIDF Research’s coverage will benefit from the stronger ringgit, such as Bermaz Auto Bhd (Bermaz) mainly from the Japanese yen while UMW Holdings Bhd (UMW) and Tan Chong Motor Holdings Bhd (Tan Chong) will stand to gain from the weaker US dollar.
The research arm highlighted that for Bermaz, every one per cent change in the Japanese yen will impact financial year 2018 forecast (FY18F) earnings by three per cent.
“For UMW and Tan Chong, every one per cent change in the US dollar will impact FY17F by 6.5 per cent and 35 per cent respectively,” it said, adding that Tan Chong is forecasted to register losses in FY17F-18F.
On a more important note, MIDF Research pointed out that the improved macro environment, which was one of the key thesis behind its recent sector upgrade to ‘overweight’, should trickle down to discretionary consumer spend more meaningfully going forward.
“Toyota is expected to launch four new facelifts in 2H17 (CH-R and new Camry speculated in FY18F), while Honda has already launched the new CRV and City Hybrid recently.
“Mazda is expected to launch an all new CX5 (which is its bread and butter model) in October 2017 while Perodua is speculated to come up with a MyVi replacement,” the research arm said in the latest sector update.
Meanwhile, the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) view on the sector remained conservative as consumer purchases of automobiles have been clamped by stringent lending guidelines as well as consumer sentiment lingering at level below the optimistic threshold, less than 100 pts, on higher living expenses.
“Additionally, the recent strengthening of the ringgit against US dollar-Japanese yen is still insufficient to cushion the negative effects on the automakers,” it opined.
On the Motor Tariff Liberalisation, Kenanga Research noted that with the phased liberalisation of the motor tariff to kick off on July 1, 2017, insurance companies will be given some freedom to price the premiums.
“The phased liberalisation will begin for Comprehensive and Third Party Fire and Theft classes,” the research arm said. “Premiums to be charged for these classes will be based on the risk profiles of vehicle owner or the vehicle itself.”
Kenanga Research further noted that this will result in an open market with competitive pricing.
“Consumers will have the freedom to shop around for the best price based on their individual insurance needs,” Kenanga Research said.
“Insurance companies will also be allowed to offer additional products attached to the motor policies for consumers to pick and select what they need from the array of new products.”
The research arm added that with this insurance liberalisation, cars will be sold separately from the insurance policies.