Stiff competition to affect earnings of auto players

PETALING JAYA: Earnings of the automotive sector are expected to remain soft, with a 1.8% growth in 2025 and a sharp 62% drop in 2026, reflecting margin pressure and weak volumes amid keen competition, say analyts.

The sector’s valuation, which is trading at 11.8 times, is deemed “fair” given the muted earnings outlook and limited catalysts, with upside potential likely capped in the near term, said UOB Kay Hian (UOBKH) Research.

RHB Research is also wary of the sector’s outlook. The impending subsidy rationalisation and the implementation of expanded sales and service tax might dampen consumer sentiment.

Kenanga Research said its 2025 forecast of new vehicle sales in Malaysia or total industry volume (TIV) at 805,000 units is above the forecast of 780,000 by Malaysia Automotive Association (MAA).

This is backed by strong sustained demand in the affordable segment, new launches, a downtrading trend by mid-market buyers and the forward buying interest on the deferment of new excise duty regulations to end-2025.

Kenanga Research kept its “overweight” call on the sector. RHB Research retained its “neutral” stand, while UOBKH Research downgraded its call to “underweight.’’

UOBKH Research said MAA’s May 2025 TIV rose month-on-month, driven by higher deliveries and more working days.

Non-national brands remained weak, with Japanese players under pressure from strong Chinese competition.

It said Chinese players’ market share rose 5%, while key Japanese brands saw their combined market share slip 2% to 21% of total passenger vehicles.

Fierce competition will likely pressure established players in the same segment, according to the research house.

RHB Research had Sime Darby Bhd as its sole “buy” stock call for the sector.

Kenanga Research said MBM Resources Bhd and Hong Leong Industries Bhd were its sector picks as they are good proxies to the affordable vehicle market.