KUALA LUMPUR (Oct 2): Malaysia’s automotive sales volume could continue to surprise the market, Kenanga Investment Bank flagged on Wednesday, as it upgraded the sector to “overweight” from “neutral”.

Total industry volume, or new vehicle registrations, could hit 800,000 units this year, according to the research firm’s projection. That compares to the forecast of 765,000 units by the Malaysian Automotive Association (MAA) that represents most domestic and foreign brands.

“This is backed by strong sustained demand in the affordable segment, attractive new launches, softer-than-expected impact from e-invoicing and a downtrading trend by mid-market buyers,” Kenanga said.

The number of vehicles sold in the first eight months of the year have hit 533,301 units, up 5.9% from 503,783 units in the corresponding period last year, according to MAA’s latest data.

Consumers, meanwhile, would have to weigh purchases of cars and other big-ticket items ahead of an impending subsidy rationalisation against potential cash handouts and other forms of assistance from the government to keep a lid on the rising cost of living.

The government has announced the re-targeting of diesel subsidy in June, while rationalisation for RON95, the most widely-used petrol variant, is expected to follow suit.

For now, “the industry’s earnings visibility is still good,” Kenanga said, citing bookings totalling 160,000 units at end-August.

More than half of the backlog is made up of new models, pointing to the appeal of new models, and the trend is likely to persist throughout the remaining months of 2024 given a strong line-up of new launches, Kenanga said.

The research house also reiterated that the fuel subsidy rationalisation will likely hurt demand for mid-market cars though it would be business-as-usual for the lower-end segment, resulting in a “two-speed” market for 2024.

For strategy, Kenanga upgraded Bermaz Auto Bhd (KL:BAUTO) and DRB-HICOM Bhd (Kl:DRBHCOM) to “outperform”, joining MBM Resources Bhd (KL:MBMR), HIL Industries Bhd (KL:HIL), Hong Leong Industries Bhd (KL:HLIND) and Sime Darby Bhd (KL:SIME).

All in, the research house now has six stocks in the sector on “outperform”, with Tan Chong Motor Holdings Bhd (KL:TCHONG) being its sole stock on an “underperform” rating.