It’s business as usual for affordable car segment

PETALING JAYA: The outlook for the automotive industry this year suggests a continuation of the two-speed market trend, with different dynamics unfolding across the affordable and premium vehicle segments.

Kenanga Research forecast total industry volume (TIV) for 2025 at 805,000 units, reflecting a marginal 1% year-on-year decline.

The outlook is influenced by various economic and regulatory factors, including the deferment of new excise duty regulations to end-2025, implementation of the progressive wage model, and impending RON95 fuel subsidy rationalisation.

“It will be business as usual for the affordable segment as its target customers, that is, the bottom 40 and lower tier mid-40 (M40) groups, will be spared the impact of the impending RON95 subsidy rationalisation and could also potentially benefit from the introduction of the progressive wage model,” Kenanga Research stated.

The research house expects Perusahaan Otomobil Kedua Sdn Bhd (Perodua) to be the key beneficiary, projecting it to maintain a 44% TIV market share thanks to its high localisation rate and upcoming model launches, including a Perodua hybrid, Perodua electric vehicle (EV), and the all-new Perodua Myvi.

These models, combined with higher household income from the December 2024 salary hike for government servants and higher minimum wages which started in February and stable labour market conditions, should sustain demand.

However, the premium vehicle segment may face headwinds.

Kenanga Research noted that “the same cannot be said for the premium segment as its target customers, that is, the upper tier M40 and Top-15 groups, may hold back from buying new cars, down trade to smaller cars or switch to hybrids and EVs to cut their fuel bills upon the introduction of fuel subsidy rationalisation”.

The industry’s earnings visibility remains stable, supported by a booking backlog of 130,000 units as at end-February 2025.

“More than half of the backlog is made up of new models, alluding to their appeal to car buyers,” Kenanga Research highlighted, adding that the trend is likely to persist throughout 2025 given a strong line-up of new launches.

Sales of battery electric vehicles (BEVs) are also expected to remain robust.

According to Kenanga Research vehicle sales will also be supported by new BEVs that enjoy sales and service tax exemption and other EV facilities incentives up until 2025 for completely built-up units and 2027 for completely knocked-down units.

The Transport Ministry reported BEV registrations leaping from 274 units in 2021 to over 3,400 units in 2022, 13,301 units in 2023, and 21,789 units in 2024, representing 3% of TIV.

Kenanga Research anticipated “more favourable incentives from the government which has set a national target for EVs and hybrid vehicles of 20% of TIV by 2030 and 38% by 2040”.

Infrastructure to support EV adoption is also set to improve, it noted.

“The number of proposed charging stations is currently at 4,299 (3,611 built to date) and this should more than double to 10,000 by end-2025,” Kenanga Research said.

Its top picks for the sector are MBM Resources Bhd and Hong Leong Industries Bhd (HLI).

“We like MBM Resources for its strong earnings visibility backed by an order backlog of Perodua vehicles of 80,000 units (2025 target sales of 345,000 units), being a good proxy to the mass-market Perodua brand given that it is the largest dealer of Perodua vehicles in Malaysia and its attractive dividend yield of about 8%,” Kenanga Research said.

Meanwhile, the research house expects HLI to perform well, describing it as “a strong proxy to the booming gig economy given the critical role of motorised two-wheelers in executing online delivery transactions,” and highlighting the brand’s strong position in Malaysia’s motorcycle market.

“We anticipate robust demand for the motorcycles market (to achieve a record year of 700,000 units or up 11%) in 2025, with Yamaha holding the lion’s share of 50%,” it added.

On the downside, intense competition in the non-national segment remains a concern.

“If the intense competition prolongs where there will be mass localisation of foreign brands...this may also weigh on valuation for others such as Sime Darby Bhd as well as acting as a precursor to our recent downgrade on Bermaz Auto Bhd (BAuto),” Kenanga Research cautioned.

Kenanga Research observed that the automotive sector’s earnings delivery in the fourth quarter of 2024 (4Q24) was mixed.

“The sector’s earnings delivery (versus our expectations) saw a disappointment in the recently concluded 4Q24 results season with 14%, 29% and 57% respectively coming in above, within and below, as opposed to 15%, 70% and 15% coming in above, within and below, a quarter ago,” it said.

Companies like HLI outperformed due to strong demand for new motorcycle models, while others such as BAuto faced challenges amid intense competition and lower margins.