Auto sector outlook showing divergence

PETALING JAYA: The automotive industry’s earnings visibility is still good, backed by a booking backlog of 130,000 units as of the end of February this year.

More than half of the backlog is made up of new models, indicating the appeal of new models to car buyers, said Kenanga Research.

The trend is likely to persist throughout this year given a strong line-up of new launches, the research house added.

Meanwhile, RHB Research expects the total industry volume (TIV) to be seasonally softer in the second quarter of this year (2Q25), impacted by the Hari Raya holidays and scheduled factory maintenance at Perodua and Proton.

The research house remained cautious on the outlook of the automotive sector amid persistent price competition in the non-national segment and easing order backlogs.

It maintained a “neutral” call on the sector, reflecting its expectation of a cyclical slowdown driven by the absence of strong catalysts to propel sales and earnings to new highs.

The research house’s top sector pick is Sime Darby Bhd given its strategic positioning to weather the impact of the impending subsidy rationalisation for RON95 fuel and its exposure to Perodua, Malaysia’s most popular car brand.

Kenanga Research’s top picks are MBM Resources Bhd and Hong Leong Industries Bhd, with an “overweight” call on the sector.

The research house said its TIV forecast for this year of 805,000 units will be driven by forward buying interest on the deferment of new excise duty regulations to the end of this year.

It expects Perodua to benefit the most, at 44% TIV market share with the highest localisation rate that could have resulted in prices of locally assembled vehicles increasing by 10% to 30% under the new excise duty calculations, as well as attractive new launches such as a Perodua hybrid, Perodua electric vehicle (EV) and all-new Perodua Myvi.

The expectations was also backed by higher household incomes, with the salary hike for government servants last December , higher minimum wages starting February this year, and a stable labour market.

The same cannot be said for the premium segment, as the target customers, for instance the upper-tier M40 and T15 groups, may hold back from buying new cars, trade down to smaller cars or switch to hybrids and EVs to cut their fuel bills upon the introduction of fuel subsidy rationalisation.

The research house said there are more electric vehicles EVs in the market, and vehicle sales will also be supported by new EVs that enjoy sales and service tax exemption and other EV incentives up until the end of this year for completely built-up vehicles and 2027 for completely knock down models.

TA Research maintained its “neutral” call on the sector and reiterated its TIV forecast of 700,000 for this year.

It maintained a “sell” on MBM Resources and Bermaz Auto Bhd, while Sime was still rated as a “hold”.