Total industry volume for auto sector to trend upward in Q1: HLIB
08 Jan 2024
The total industry volume (TIV) for the automotive sector is predicted to trend higher in the first quarter of this year (Q1) and to slow down in Q2 and Q3, according to research by Hong Leong Investment Bank (HLIB).
The firm said that the 200,000 units in the order backlog that are scheduled for delivery during that time are the reason for the high volume early this year.
“However, we expect TIV to slow down in Q2–Q3 2024 due to declining new orders, softer consumer sentiment, and brought-forward purchases.
“Hence, original equipment manufacturers (OEMs) will have to leverage attractive new models and sales programs in order to sustain sales. Subsequently, TIV will likely recover towards 4Q24 due to more aggressive year-end sales,” it said.
Nevertheless, it said there is still upside potential from exciting new model launches in late 2023 and 2024 and more aggressive sales and marketing activities to sustain sales by the various OEMs.
TIV registered a growth of 11.3 per cent year-on-year (YoY) to 718,600 units in the first 11 months of 2023, driven by high order backlogs of 300–350,000 units during the start of the year and continued strong demand on the back of attractive new launches since 2022.
“For 2023, we expect TIV to hit a new record high of 790,000 units (up 9.6 per cent YoY). However, for 2024, we expect TIV to normalise back to 720,000 units (down 8.9 per cent YoY), mainly due to declining order backlogs,” it added.
The firm also expects Bank Negara Malaysia to maintain the overnight policy rate at 3.00 per cent in 2024, as the central bank will adopt a “wait and see” stance to ascertain the durability and strength of underlying economic demand.
“In any case, we estimated a 25 basis point increase effect on monthly instalments of +RM15 per month (based on the RM80,000 car price, with a 90 per cent loan application and a nine-year loan period).”
It also foresees the ringgit to appreciate in 2024 to an average of 4.44 against the US dollar, ending the year at 4.30.
“Stronger ringgit will lower the effective input costs for imported completely built-up cars, completely knocked-down packs, and raw materials, and subsequently improve OEMs’ margins. OEMs that have major exposure to the US dollar include Toyota (Sime Darby Motors Bhd and UMW Holdings Bhd) and Nissan (Tan Chong Motors Holdings Bhd).”
HLIB maintained “neutral” on the sector and expects earnings for the sector to drop in 2024 due to lower sales volume and higher operating costs.
Its top picks are DRB Hicom Bhd (Buy, TP: RM2.00) and MBM Resources Bhd (Buy, TP: RM5.40) for their strong leverage over the national OEMs, Proton and Perodua, which have more sustainable sales volume and potential export growth in the longer term.
Source: NST
