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Automotive sector to recover on strong demand, freer movement, say research firms

Automotive sector to recover on strong demand, freer movement, say research firms

25 Mar 2021

MIDF Research has maintained its ‘positive’ call on the automotive sector tracking a healthy recovery against an exceptionally weak January 2021.

In a research note, it said January performance was impacted due to shortages of inventories following strong fourth quarter 2020, shortages of local parts supplies and global chip shortage issue. 

“The first two factors have been addressed following the decision to allow auto manufacturing activities to operate, even in the movement control order (MCO) areas, but chip shortage issues could still persist until mid-calendar year (CY) 2021, though the impact is limited to selective models in the market. 

“Additionally, showroom traffic improved after the lifting of the MCO in certain states,” it said. 

Year-to-date, the research firm noted that total industry volume (TIV) down 10 per cent to 75,621 units, but March-April numbers should improve further on removal of the 10-km movement restrictions, full operations of the Road Transport Department and pre-Hari Raya Puasa purchasing.

More importantly, it said March-April 2021 TIV will come off an exceptionally weak base in the same period last year (with only 165 unit sales in April 2020), which was severely impacted by the MCO1.0. 

“Despite the temporary supply constraint, demand remains strong with one to three months’ worth of booking bank on average, backed by the extended tax holiday.

“The stronger ringgit further underpins the sector’s earnings recovery this year,” it added.

Meanwhile, CGS-CIMB, in a research note, which maintained a ‘neutral’ call for the automotive sector, projected that 2021 TIV would reach 580,000 or 10 per cent higher year-on-year (yoy) on the back of higher sales at Proton (20 per cent yoy) and Perodua (13 per cent yoy), driven by multiple new launches.

“We gather that demand for Proton X50 and X70 remains strong, with Proton’s management indicating during DRB-Hicom’s post 4Q 2020 results briefing that these models have order backlogs of about three to four months. 

“On another note, Perodua has received over 8,000 bookings for its recently-launched Ative sport utility vehicle (SUV). Overall, we believe these positive developments will help support TIV growth in 2Q 2021 and beyond,” said CGS-CIMB.

Source: Bernama

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