Maybank IB Predicts 19% Drop In Auto Sales, Favours BAuto For Strong Financials

Maybank Investment Bank (Maybank IB) predicts that Malaysia's automotive industry will face challenges in 2024, reports Bernama.

A key obstacle for which will be the High-Value Goods Tax (HVGT) and higher service tax rates, which takes effect from May 1, 2024. Said new taxation scheme will have an impact on premium vehicle sales.

Maybank IB also reportedly listed other factors that could influence the industry, such as targeted subsidy rationalisation. It also expects higher service tax rates on vehicle repair and maintenance services raising vehicle ownership costs in turn impacting new car sales.

In its research notes, Maybank IB also highlights the growing shift from dealership to agency models, which is primarily driven by Western automakers looking to strengthen their presence in Southeast Asia. Maybank IB identified two key themes for 2024 namely, the increased adoption of the agency model, and acceleration of the electric vehicle (EV) transition.

The investment bank expects total industry volume (TIV) this year to stabilise at 650,000 units, which marks a 19% Year-On-Year (Y-O-Y) drop following two years of record growth. Having said that, Malaysia has become a popular destination for foreign direct investment (FDI) from global automakers such as Volvo, Stellantis, Tesla, and Chery.

While Mercedes-Benz, BMW, Porsche, Audi, and Dong Feng intend to build vehicles locally as a CKD offering and export markets, Maybank IB believes that the influx of FDIs will have a positive long-term impact on the industry, depending on how automakers position themselves in the supply chain.

However, Maybank IB warns that local producers and distributors will face increased competition in 2024. They could potentially eat into their margins, especially with many new product launches and brand entry which includes EVs.

Despite this, Maybank IB maintains a "neutral" rating on the automotive sector. At the same time, it does favour the likes of Bermaz Auto Bhd (BAuto) because of its strong fundamentals, resilient financial standing, robust free cash flows, and an attractive dividend yield of more than 8%.

Despite the expectation of Y-O-Y normalisation in TIV, Maybank IB expects BAuto's earnings to grow for the fiscal year ending April 30, 2024. Bolstering this are continued strong demands for Mazda and the potential addition of a new EV distributorship to its portfolio.

The latter is an expected move as BAuto relinquishes its status as distributors of the Peugeot brand to principals Stellantis. More on BAuto’s new EV brand venture would be revealed in the coming weeks with an expected announcement after the upcoming Chinese New Year festive holidays.