Demand for cars unlikely to pick up speed in tough economic environment – analysts


KUALA LUMPUR (June 9): While the Total Industry Volume (VIT) for the automotive sector is expected to increase following the exemption from sales tax on locally assembled or completely dismantled units and a 50% reduction in sales tax for units imported from units, the projected increase in demand will not be as strong as the increase in demand for cars following the abolition of the goods and services tax (GST) and the tax holiday which followed two years ago.

In a note, Brian Yeoh, of AffinHwang Capital Research, said he was not ruling out that the new tax arrangement, lower purchase loan rates and cheaper oil prices could be factors tempting for new car buyers.

That said, a tough economic environment resulting in higher unemployment and lower disposable income due to wage cuts will force Malaysian consumers to defer purchases of expensive items like cars.

“We believe Malaysians may even consider traveling with the MY30 Unlimited Travel Pass to cope with the economic shock. Additionally, we feel that many Malaysians are adjusting to working from home, therefore cars may not. be seen as a necessity in the coming years, “said Yeoh, who moved the autos and parts industry to” neutral, “when it was” underweight “previously.

In terms of TIV forecasts, Yeoh maintains its forecast of 485,000 units (a 20% year-on-year decline [y-o-y] from 604,000 units in 2019), noting that sales tax exemptions are expected to limit the sharp contraction in sales seen in TIV figures from April to date (YTD).

Meanwhile, AllianceDBS Research’s Abdul Azim Muhthar noted that unlike the previous three-month tax holiday in 2018, he doesn’t expect robust sales growth this time around as consumers can continue to be cautious. as for spending on big ticket items such as cars due to the economic downturn. As a result, it only increases its 2020 TIV assumption by 5% to 420,000 units – which is still 30% down on an annual basis.

“For now, the YTD TIV at the end of April stood at 107,000 units. We expect sales to pick up gradually, especially around December, as customers may prefer to wait for the Covid-19 situation to relax and capitalize together. on tax incentives with year-end campaigns, ”he said in a note.

As for MIDF Research’s Hafriz Hezry, the government’s decision is enough for him to raise his forecast for TIV 2020 to 554,433 units, down from 504,580 units previously. He noted that as a result, the 2020 TIV is now expected to contract 8.3% year-on-year, compared to the 16.5% year-on-year previously forecast.

For reference, the three-month tax holiday in 2018 saw the monthly TIV increase 32% year-on-year, or in absolute terms, around 21,000 units per month compared to the monthly TIV before public holidays.

“By comparison, our revised projections for FY20F imply an incremental TIV of 7,800 units / month that is relatively conservative over the tax exemption period. The much longer 6.5-month implementation should give the industry support. enough to get through the weak second half of 2020 (2H20) before an expected underlying macroeconomic improvement sets in towards the end of 4Q20 (fourth quarter 2020) or the start of FY21F, “he said in a statement. note today.

Mohd Shanaz Noor Azam of CGS-CIMB Research, while agreeing that the improvement in sales will be marginal compared to two years ago, also pointed to stricter loan requirements, which could be a barrier for purchases of cars.

“We believe that the improvement in sales will only be marginal compared to the GST exemption period two years ago given the different economic situations; 2020F faces a potential increase in the unemployment rate and stringent lending requirements from financial institutions as banks gradually reduce rental exposure. In addition, Malaysia already has one of the highest motorization rates in Southeast Asia, ”he said in a note.

Mohd Shanaz, who has a neutral appeal on the automotive sector, increases his TIV forecast for 2020 to 500,000 units, from 490,000 units, to reflect higher sales forecast for non-national auto brands rising to 205,000 from 190 000 previously.

The higher TIV forecast implies an average monthly TIV of 56,000 units from June to December 2020, with a 17% year-over-year decline expected for the 2020 TIV.


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