Shifting to a lower gear

DEMAND is no longer booming in Malaysia’s automotive sector, resulting in a largely subdued outlook.

That said, investment opportunities still exist – supported by strong local car brands, attractive dividend payouts and the gradual shift towards electric vehicles (EVs).

Analysts are increasingly steering investors towards companies with stronger exposure to national carmakers, local assembly operations and defensive earnings profiles, as the sector moves into a slower growth phase following four record-breaking years for total industry volume (TIV).

Among the preferred names, RHB Investment Bank keeps “buy” calls on Sime Darby Bhd, with a target price (TP) of RM2.55, and Tan Chong Motor Holdings Bhd with a TP of 90 sen.

The brokerage remains “neutral” on Bermaz Auto Bhd (BAuto) (TP: RM1) and MBM Resources Bhd (TP: RM5.50).

CIMB Securities, meanwhile, names MBM Resources (TP: RM6.07) and HI Mobility Bhd (TP: RM2.80) as its top picks, citing resilient earnings and attractive dividend yields despite a softer sector outlook.

Hong Leong Investment Bank (HLIB) Research also favours MBM Resources (TP: RM7.10) and Sime Darby (TP: RM2.85), saying both companies are “well positioned, given their strong exposure to resilient sales from Perusahaan Otomobil Kedua Sdn Bhd (Perodua)”.

The research house expects national original equipment manufacturers (OEMs) to sustain sales momentum even as the broader market normalises.

Easing volume

The cautious tone comes despite another solid month for industry sales. The Malaysian Automotive Association reports that April 2026 TIV rose 13.5% month-on-month to 72,100 units, extending two consecutive months of recovery. Cumulative TIV for the first four months of the year edged up 1.4% year-on-year (y-o-y) to 254,300 units.

Passenger vehicle sales continued driving the recovery, climbing 1.7% y-o-y to 238,400 units, while commercial vehicle sales slipped 2.5% to 15,900 units.

Still, most research houses believe the recovery is losing momentum.

Against this backdrop, RHB Research, for one, maintains its “neutral” stance on the sector.

“We maintain our cautious outlook on the sector, premised on policy uncertainties; potential inflationary pressures which could reduce demand; and the softening of the car replacement cycle, given the four record-breaking years for TIV,” the brokerage says.

RHB Research recently cut its 2026 TIV assumption to 780,000 units, representing a 5% y-o-y contraction.

The brokerage also warns that “May TIV is likely to soften from April’s high base”. Rising crude oil prices, coupled with concerns surrounding fuel subsidy rationalisation and cost-push inflation, could weaken discretionary spending further, it explains.

TA Research adopts an even more defensive stance, with an “underweight” rating on the automotive sector, with 2026 TIV projections of 750,000 units, representing a contraction of 8.6% y-o-y.

The brokerage believes April TIV strength partly reflects festive-related deliveries and new model launches rather than sustainable underlying demand.

“Fading order backlogs, cautious consumer spending amid rising living costs, and intensifying competition within the automotive segment may continue to weigh on overall industry demand,” it points out.

As a result, TA Research maintains its “sell” calls on BAuto (TP: 84 sen), MBM Resources (TP: RM4.70)) and Sime Darby (TP: RM2.10).

CIMB Research also keeps a “neutral” stance on the sector, given the subdued growth outlook amid intensifying market competition. However, it notes that valuations remain relatively supportive, with the sector trading at 10.1 times weighted average calendar year 2026 forward price-to-earnings, slightly below its five-year average of 11 times.

Dividend yields of 6.6% to 6.9% continue providing another layer of support for investors seeking income-oriented names.

Local marques

Like RHB Research, CIMB Research projects 2026 TIV at 780,000 units amid a challenging macroeconomic outlook and inflationary pressures from rising energy costs driven by the Middle East conflict.

Even so, CIMB Research expects national brands to continue gaining market share. It forecasts national marques accounting for 66% of industry sales in 2026 compared with 62.4% in 2025, supported by wider adoption of electrified vehicles and more competitive product pipelines.

HLIB Research shares a similar expectation.

“We expect national marques to maintain their sales momentum in 2026, while non-nationals may continue to face pressure amid intensifying competition from new entrants offering more competitive pricing, refreshed designs, and enhanced product features,” it says.

The research house expects sector earnings to remain under pressure because of weaker sales volumes, softer consumer sentiment and rising promotional costs. Still, a stronger ringgit against the US dollar and Japanese yen should cushion part of the earnings pressure.

Evolving landscape

The conversation is also shifting increasingly towards Malaysia’s evolving EV landscape after the Investment, Trade and Industry Ministry introduces stricter import requirements for new completely built-up EVs under the Franchise Approved Permit system from July 1, 2026.

The policy introduces two key conditions: a minimum cost, insurance and freight floor price of RM200,000 and a minimum motor output requirement of 180 kilowatts.

BIMB Securities Research calls the policy structurally bullish for local automotive players with strong completely knocked-down exposure, but carries notable risks regarding consumer accessibility and the pace of EV transition.

The research house favours companies with stronger local manufacturing capabilities, particularly DRB-Hicom Bhd, while remaining selective on import-heavy players.

It recommends a “hold” call on MBM Resources (TP: RM5.28) and Sime Darby (TP: RM2.46) and “sell” on BAuto (TP: 68 sen).

BIMB Research also highlights several risks. It warns of an “Infrastructure Deployment Trap”, where slower EV adoption could reduce charger utilisation rates and weaken returns for operators such as Gentari, ChargEV and JomCharge.

The research house further cautions that aggressive protectionist policies could discourage foreign OEMs from placing future battery and high-technology manufacturing investments in Malaysia.

CIMB Research, however, believes the policy could create a healthier competitive structure.

“The aggressive price competition seen over the past one to two years – largely driven by lower-priced imported Chinese EVs – may moderate as import economics become less favourable,” it says.

That, in turn, could create a more rational pricing environment for existing OEMs and improve margin sustainability across the sector.

The brokerage believes the policy strengthens the position of national players such as Proton Holdings Bhd and Perodua as both continue developing localised EV strategies.

Proton could benefit from its growing xEV portfolio and local manufacturing footprint, while Perodua is expected to record stronger EV sales in the second half of 2026 as domestic production improves.

CIMB Research also notes that BAuto’s locally assembled XPeng EV models are already in production ahead of the new rules, potentially easing near-term disruptions.