KUALA LUMPUR (Oct 4): Kenanga Research has maintained "overweight" on the automotive sector with MBM Resources Bhd as its top pick with a target price of RM4.70 and its calendar year 2023 (CY2023) total industry volume (TIV) forecast of 720,000 units, which would match the record level achieved in CY2022, and introduced its CY2024 TIV forecast of 710,000 units.

In the space of non-national brands, the research house said automakers are shifting away from the highly competitive low-margin segment such as 7-seater SUVs and focus on premium products that will appeal to the middle-income group such as those offered by Bermaz Auto Bhd (OP; TP: RM3.22). Honda, for instance, replaced its 7-seater variant of Honda BR-V with WR-V (small 5-seater SUV), raking in 7,300 units in bookings and 3,300 units delivered just within a few months after launching.

It said car buyers are spoilt for choice with new launches including Perodua D66B (1QCY24, B-segment), Toyota Innova Zenix (3QCY23), Mazda CX-30 CKD, Peugeot Landtrek, Peugeot e-2008 (EV), Kia Sorento, Kia Sportage, Kia Carens, Honda WR-V, Honda CR-V, Toyota Vios, Toyota Yaris, Toyota GR86, Toyota GR Corrolla and Nissan Serena.

In a sector update on Wednesday, the research house said the industry’s earnings visibility is still strong, backed by a booking backlog of 235,000 units.

Kenanga said a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy.

“We now see greater opportunities in the affordable segment, as it will be less affected by the targeted fuel subsidy, which may dent demand for mid-market vehicles, as it will erode spending power of the middle 40% income group.

“Our sector top pick is MBM Resources Bhd ('outperform'; target price: RM4.70) that focuses on the affordable segment. It also offers an attractive dividend yield of about 12%,” it said.

The research house said that additionally, vehicle sales will be supported by new battery electric vehicles (BEVs) that enjoy sales and service tax exemption and other electric vehicle facility incentives up to CY2025 for completely built-up units, and CY2027 for completely knocked-down units.

It said BEV registrations had leapt significantly for the past two years (from 274 units in CY2021 to over 3,400 units in CY2022 and 7,500 units by September 2023), and are on track to meet the national target for EVs and hybrid vehicles — 15% of TIV by CY2030, and 38% by CY2040.

“Meanwhile, the government’s pledge to enable charge point operators to secure faster approvals for installations provides comfort, as currently, only 1,246 EV charging stations have been built to date.

“Apart from the strong booking backlog of 235,000 units, earnings visibility of players will also be supported by margin improvement, due to new models such as the all-new Perodua Axia, which is priced 11%-14% higher at RM38,600-RM49,000, but still garners exceptional response, with the average waiting period up to six months.

“The improvement in margins will also be underpinned by: i) softening prices of commodities and key components; ii) stabilisation of the US dollar/ringgit exchange rate; and iii) gradual run-down of high-cost inventory, as automakers ramp up production to deliver booking backlogs,” it said.