Car sales to remain strong, analyst says

by **Cals** Tue 15 Oct 2013, 09:14

Posted on 15 October 2013 - 05:40am

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PETALING JAYA (Oct 15, 2013): Automotive sales are expected to remain resilient in the remaining four months of 2013, helped by a supportive underlying macro environment with gross domestic product (GDP) growth of 4.7% this year expanding to 5.4% in 2014, said RHB Research Institute Sdn Bhd.

It sees economic growth being driven by a relatively strong growth in investment, underpinned by the ongoing implementation of projects under the Economic Transformation Programme, the Public Private Partnership and various economic corridor programmes.

"These will be supported by resilient consumer spending, underpinned by high savings, rising consumerism and favourable labour market conditions as well as fiscal transfers," said the research firm in a report yesterday.

Malaysia's total industry volume (TIV) grew 5% year-on-year to 433,023 units in the first eight months of this year.

However, RHB Research doesn't see the market sustaining the current 5% year-on-year growth pace for the full year 2013, with the higher sales base in the second half of 2012.

Nevertheless, RHB Research is anticipating TIV to surpass its 638,000-unit forecast, helped by a strong pipeline of new models including include the Toyota Vios, the Nissan Grand Livina and the Honda Accord.

But the research firm cautioned that there are still speed bumps ahead.

"Recent gains by the ringgit against the US dollar and yen have proven to be a relief for stocks in the sector (but) the rollback of fuel subsidies without a corresponding reduction in auto duties will be detrimental to auto sales. (That's because) higher fuel prices will increase inflationary pressures.

"In addition to higher interest rates, this scenario would reduce disposable incomes and limit consumer discretionary spending," it added.

And while the government has reiterated that auto duties will not be revised lower, RHB Research noted that the National Automotive Policy (NAP) is still eagerly awaited and will be a major policy document that will set the direction of the auto industry for the next decade.

"Also unclear is the duty-exempt status of hybrid cars after 2013. The main beneficiaries of the hybrid duty exemptions have been Toyota, Honda and recently, Nissan.

"(But) if the exemption is withdrawn, we expect hybrid vehicle prices to move up sharply while sales volumes will evaporate," it said.

RHB Research is keeping its "neutral" call on the auto sector, adding that the forthcoming NAP will provide much-needed regulatory clarity that could spur investment in the sector.

Its top pick is Tan Chong Motor Holdings Bhd, which has a promising long-term regional growth strategy and a strong new models pipeline.

Its top pick is Tan Chong Motor Holdings Bhd, which has in place a promising long-term regional growth strategy and a strong new model pipeline, premised on the introduction of new models for segments it has no current representation in.