RHB Research Upgrades Auto And Auto Parts Sectors On Strong Earnings Growth For 2023

The auto and auto parts sectors are expected to grow this year, owing to increased orders and excise duty reform that will most likely not take effect until 2023. In a note issued on Friday (Feb 17), RHB Research analyst Jim Lim Khai Xhiang stated that there is greater earnings visibility supported by new launches and the nearing end of Bank Negara Malaysia's overnight policy rate (OPR) hikes cycle. “Based on our checks, orders across the board are still resilient and not slowing down as we had previously feared. In Perodua's case, the outstanding 220,000 orders are much stronger than we anticipated,” he said. The excise duty, which had been delayed twice, was supposed to go into effect this year.

According to the Malaysian Automobile Association (MAA), the excise duty could raise car prices by 8% to 20%.

RHB Research rated the sector as overweight, and upgraded UMW Holdings Bhd to buy, with a target price (TP) of RM5.10. It also upgraded MBM Resources Bhd to buy, with an RM5 target price. “We maintain our view that 4Q2022 (fourth quarter of 2022) and 1Q2023 earnings will be strong across the sector. However, we now think subsequent quarters will also be strong, given the abundant orders on hand. Our top picks are MBM and UMW, as they are both proxies to Perodua's potentially blockbuster year,” he added. MBM is also liked by the research firm due to its 10% dividend yield and potential special dividends. “We also highlight Bermaz Auto’s attractive 6.7% dividend yield. Key risks include softer-than-expected orders and deliveries, and resurgent supply chain issues," he added.