PETALING JAYA: Unlike the three-month tax holiday in 2018, AmResearch believes the Overnight Policy Rate (OPR) cut will not be a catalyst for growth in the automotive sector.
This is because of a little reduction in monthly repayment for vehicles despite the rate cut.
“Hence, the minimal interest savings are not likely to drive consumers to purchase vehicles,” the research house said in a note today.
According to the back-of-the-envelope calculations, the 25-basis-points cut will only result in RM13.12 reduction in monthly repayments for a RM70,000 vehicle with 10% downpayment.
“We believe that on the purchase of big-ticket items such as cars, the bigger challenge for consumers will be the upfront 10% down payment,” AmResearch opined.
However, MIDF Research believes that the rate cut could potentially improve consumer spending in the sector, citing that historically total industry volume (TIV) growth had an inverse relationship with OPR.
“An OPR hike historically had a dampening impact on TIV growth and vice versa if OPR is cut given improved consumer spending and basically, lower hire purchase rates.”
However, the research house cautioned that the potential upside from the lower rates could be offset by the forex factor.
“Despite potentially stronger consumer spending and potential upside to TIV forecast, auto players’ margins could be negatively impacted by a potentially weaker ringgit as a result of the OPR cut.”
Of the players under its coverage, Tan Chong Motor Holdings Bhd is the most sensitive to forex movement with every 1% change in US dollar/ringgit resulting in a 12% impact on its financial results this year.
“This is followed by UMW Holdings Bhd (3% change to earnings for every 1% change in US dollar/Japanese yen) and Bermaz Auto Bhd (1.4% change for every 1% change in Japanese yen/ringgit).”
MBM Resources Bhd is least sensitive to forex changes as its earnings comprise mainly Perodua which entails highly localised models.
AmResearch said the Malaysian automotive industry continues to face headwinds with lingering issues and is expected to remain challenging in a competitive business environment.
“We look forward to the anticipated revised National Automotive Policy 2019 (NAP 2019), expected to be announced in 2Q19 which will set the long-term direction of the automotive ecosystem, and will also include the direction of the third national car development.”
Currently AmResearch is maintaining its TIV projection of 603,000 units for 2019 (+0.8% y-o-y) as the sector is currently lagging with no major catalysts after receiving a boon from the tax holiday in 2018.
from Business http://bit.ly/2VsMHO7
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