Kenanga Research maintains ‘overweight’ call on auto sector driven by new car models

KUALA LUMPUR (May 27): Kenanga Research maintains its “overweight” rating for the automotive sector as it believes that new car models will offset the current hiccup in sales of older models from the global chip shortage.

In a report today, the research house noted that total industry volume (TIV) of the Malaysian Automotive Association for April 2021 registered an over 100% year-on-year growth to 57,912 units. This growth was attributed to last year’s Movement and Control Order (MCO), where nearly all businesses were closed thereby impacting the sales during that period.

Month-on-month sales were lower due to enforcement of Conditional MCO (CMCO) in several states and global chip shortage, which has reduced sales of some models.

The research house expects May sales to trend lower due to implementation of MCO 3.0, which reduces footfall into showrooms, shorter working month due to Hari Raya festive holidays and global chip supply shortages, which are forecasted to affected sales of some models up to September 2021.

“We expect the current hiccup in sales of the older models from the global chip shortage (i.e. Perodua Myvi) to be offset by sufficient supply for the newer models which garner better margins. We believe the new volume-driven launches (i.e. Perodua Ativa, Proton X50, Honda City and Nissan Almera) could help spur sales along with overflowing back-logged bookings and further boosted by the extension of SST exemption to June 30, 2021, seasonal promotions and more new launches expected in the [second half (2H)] of the year. Overall, 2021 could potentially be a better year with NAP 2020 incentives program, positive impact from BNM’s OPR cut and pre-emptive measures that soften the Covid-19 impact. Our economics research team have the view that an expected global growth recovery and the impact of the large fiscal stimulus on domestic economy would result in a projected GDP growth rebound of 6%-6.5% in 2021 (BNM: 6.0%-7.5%; 2020: -5.6%).” said Kenanga.

The research house noted that its sector pick is MBM Resources Bhd (target price: RM4.90) as Kenanga sees it as “a pure proxy to the largest national Perodua dealership and deep value in its 22.58% stake in Perodua”.

Source: TheEdgeMarkets