Strong annual sales forecast for auto industry

PETALING JAYA: The strong sales registered by the automotive sector in August foretell a strong year for the sector, while strong balance sheets of listed companies signal attractive dividend payouts.

MIDF Research said the auto sector can be seen as a major beneficiary of the recovery in domestic consumption, despite the risks posed by higher interest rates and inflation pressures.

“The sector’s prospects are underpinned by strong order banks and an improving labor market and household income condition, while valuations are 25% to 40% below the historical mean.

“Bermaz Auto Bhd (rated a ‘buy’ with a target price (TP) of RM2.36), MBM Resources Bhd (‘buy’ call with a TP of RM4.28) and UMW Holdings Bhd (‘buy’ call with a TP of RM4.78) remain our top sector picks,” the research firm stated in a report yesterday.

Beyond the reopening thematic, it stated that Bermaz could also gain from its brand expansion following the acquisition of the Kia and Peugeot franchise which will support the automaker’s expansion in market share and above-industry growth.

MIDF Research views MBM and UMW as proxies to the sector recovery, given their exposure to Perodua and Toyota (for UMW) which together controlled some 55% of market share in August.

“Most players under our coverage are sitting on strong net cash piles, which make up 20% to 25% of their respective market caps. This underpins attractive dividend payouts for the year, we believe,” MIDF Research added.

It said automakers were sitting on an implied seven to 12-month waiting list and the strong order banks provided good revenue visibility for the sector moving into 2023.

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The Malaysian Automotive Association (MAA) stated total industry volume (TIV) for August registered 66,614 unit sales (up 36% month-on-month and 272% year-on-year or yoy) as automakers continued to fulfill booking backlogs as industry supply chain delivery improved.

Kenanga Research stated the strong industry number for August was underpinned by booking backlogs that had hit some 400,000 units (mostly vehicles of newer models that are currently out of stock), coupled with a low base in July 2022 after a bumper June 2022.

The exponential growth in the yoy figure for August was as a result of the low base due to the lockdown last year for the period.

“Moving forward, monthly sales are expected to see intermittent growth amid persistent shortage of chips and components but will continue to be anchored by the booking backlogs.

“Our sector top picks are MBM (TP: RM4.30) given its market leader position in the national marques and Bermaz (TP: RM2.30) for its attractive new models in the pipeline,” Kenanga Research stated in its report on the sector.

The strong year-to-date TIV number of 447,209 units had led Kenanga Research to revise up industry sales numbers for the year by 8% to 650,000 units, which is higher than MAA’s target of 630,000 units.

“Our revision is premised on faster delivery of backlog orders with the easing of parts supply shortage for certain models.

“We expect earnings in subsequent quarters to gradually normalize to pre-pandemic levels, backing our forecast sector earnings growth of 23% in financial year 2023, which should justify sector price earnings multiple gradually reverting closer to the mean,” it noted.

Kenanga Research forecasts sustainable car sales into 2023, driven by new model launches and expects minimal order cancellations with demand outweighing supply given the massive backlog orders (to the tune of 400,000 units).

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