The MAA has submitted an appeal to the Ministry of Finance to further extend the sales tax exemption for new vehicles in light of the on-going supply shortage situation which has impacted the industry’s production ability to meet the extended order backlog. – AFP photo
KUCHING (May 11): The extension of sales tax exemption will be an incremental positive for the auto sector, which could render further upside to analysts’ projections.
The research arm of MIDF Amanah Investment Bank maintained its projection of a 13 per cent year on year (y-o-y) recovery in 2022F total industry volume (TIV) to 575,000 units, assuming absence of any further pandemic-induced lockdowns and on the back of strong outstanding orders, notwithstanding potential short-term weakness immediately post-sales tax holiday expiry in June 2022.
“Our 2022F TIV projection is at the lower end of the pre-pandemic range to reflect the on-going chip shortage situation and potential intermittent supply chain disruptions,” MIDF Research said.
“The Malaysian Automotive Association (MAA) has submitted an appeal to the Ministry of Finance to further extend the sales tax exemption for new vehicles in light of the on-going supply shortage situation which has impacted the industry’s production ability to meet the extended order backlog.
“Should this be successful, it would be an incremental positive for the auto sector, which could render further upside to projections.
“As an indication, an additional 6-month tax holiday is estimated to raise our forecast to circa 595,000 to 605,000 (up 17 per cent to 19 per cent y-o-y).
“The potential upward revision to our projection echoes that of MAA’s, which is indicating of potential upside to its current 2022 TIV target of 600,000 (up 18 per cent y-o-y) should the tax holiday be extended.”
Looking ahead, MIDF Research’s economics team has projected 2022 overnight policy rate (OPR) to increase by 25 basis points (bps) to two per cent in the second half of the year.
While post-interest rate normalisation periods tend to see TIV growth flattening out, the research arm’s 2022 expectation merely places the OPR at the previous 2008-2009 crisis low of two per cent.
“Based on historical trends, these OPR levels are still accommodative to TIV recovery.”
MIDF Research expects the pressure on TIV growth to mount once the OPR normalisation increases pace, but the research arm opined that this should be balanced out with stronger traction in broader economic growth and recovery in employment.
“On the flip side, an aggressive interest rate normalisation cycle amid still fragile economic recovery could pose downside risk to TIV.”