Kenanga Investment Bank (Kenanga) maintained its neutral recommendation for the automotive sector, noting improved earnings delivery in 1QCY24, based on their analyst report on June 19, 2024. The sector’s performance met or exceeded expectations, with 43% of companies beating forecasts and 57% meeting them, compared to the previous quarter, where 43% exceeded, 29% met, and 29% missed expectations.
Kenanga upheld its forecast of new vehicle sales in Malaysia at 740,000 units for CY24, reflecting an 8% decline. It was anticipated that while the affordable vehicle segment would remain stable, the rationalisation of fuel subsidies might dampen demand for mid-market models, leading to a bifurcated automotive market in CY24.
BAUTO concluded FY24 positively, driven by stronger margins and increased production volumes. HLIND’s performance exceeded expectations due to robust motorcycle sales facilitated by eased credit conditions. Conversely, TCHONG’s losses were narrower than expected due to favourable forex movements despite weak car sales in a competitive market.
HIL and MBMR benefitted from strong sales by Perusahaan Otomobil Kedua Sdn Bhd, with HIL also seeing gains from property profits. MBMR’s strong sales were partially offset by increased costs. SIME’s strong profits from its industrial and automotive segments were bolstered by the consolidation of UMW Holdings Bhd’s earnings. DRBHCOM’s improved operating results were countered by higher taxes.
Kenanga projected the automotive market to maintain good earnings visibility, supported by a backlog of 200,000 vehicle orders as of May 2024, with new models driving buyer interest. The sector was expected to see continued support from new battery electric vehicles (BEVs) benefitting from tax exemptions and incentives until CY25 for CBU and CY27 for CKD.
The government’s efforts to expedite approvals for EV charging stations aimed to support the growing BEV market, with BEV registrations rising significantly from 274 units in CY21 to over 10,159 units in CY23.
Kenanga’s top sector pick was MBMR, highlighted for its strong earnings visibility supported by an order backlog of over 100,000 Perodua vehicles, representing nearly half of its CY24 sales target. MBMR’s position as the largest dealer of Perodua vehicles in Malaysia and its attractive dividend yield of approximately 7% make it a compelling investment choice.
