KUALA LUMPUR (June 6): The outlook for Malaysia’s automotive sector has turned cautious following a lacklustre quarter attributed to escalating competition from foreign brands and operational pressures across various business segments, according to Kenanga Investment Bank Bhd.
As a result, the research house has downgraded the automotive sector to “neutral” from “overweight”, citing persistent challenges ahead.
“A two-speed automotive market locally will persist into calendar year 2025 (CY2025),” said Kenanga.
“It will be business as usual for the affordable segment as its target customers, ie the B40 and lower-tier M40 groups, will be spared the impact of the impending RON95 subsidy rationalisation and could also potentially benefit from the introduction of the progressive wage model,” Kenanga added.
The research house recently downgraded Sime Darby Bhd (KL:SIME) and DRB-Hicom Bhd (KL:DRBHCOM) to “underperform”, citing continued obstacles and wide loss margins.
However, it highlighted MBM Resources Bhd (KL:MBMR) and Hong Leong Industries Bhd (KL:HLIND) as its top picks as both were considered strong proxies to the affordable vehicle segment, with added favour from the fuel subsidy restructuring and attractive dividend yields of 8% and 5%, respectively.
Analysts noted that Hong Leong Industries’ surprising quarter was driven by stronger-than-expected earnings from higher production of new motorcycle models, price adjustments and a product shift towards premium models with better margins. It also recently unveiled the Xmax 2025 model and TMAX Tech Max 2025 at the recent Malaysia Autoshow.
Hil Industries Bhd (KL:HIL) and MBMR are also seen benefitting from resilient sales volume in the affordable car market.
Meanwhile, Bermaz Auto Bhd (KL:BAUTO) saw its core net profit halve, citing a sharp decline in vehicle sales and thinner margins. The group benefitted from initial contributions from the newly-distributed Xpeng vehicles, but could suffer from competition in the non-national car segment and margin risks remain, especially if the Japanese yen strengthens due to a more hawkish Bank of Japan.
Looking ahead, Kenanga forecasts total industry volume (TIV) to reach 805,000 units in 2025, driven by forward buying ahead of the deferred excise duty implementation at year-end.
Perodua is set to retain its leading 44% market share, supported by high localisation, appealing new model launches and a resilient labour market, with Kenanga’s economists forecasting that unemployment is expected to decline to 3.2% in CY2025 from 3.3% in CY2024.
In the premium segment, analysts noted that consumers from the upper M40 and T15 groups may defer purchases or shift to more fuel-efficient options such as hybrids and electric vehicles (EVs) to mitigate rising costs.
Kenanga also flagged that household bills are expected to rise due to fuel subsidy reforms and a projected 14% increase in electricity base tariffs for higher consumption tiers — something that could trigger greater attraction to solar panel adoption and indirectly boost EV demand.
EVs benefit from lower routine maintenance costs compared to internal combustion engine (ICE) vehicles, due to fewer moving parts and reduced wear and tear, according to analysts.
The research house added that the government’s push towards EV adoption is expected to gather pace, with more battery EV models entering the local market under continued sales and service tax exemptions and incentives for both completely built-up (CBU) and completely knocked-down (CKD) units. Malaysia is targeting a 20% share of EVs and hybrids in total vehicle sales by 2030, rising to 38% by 2040, according to the research note.
Charging infrastructure is also set to expand, with Kenanga expecting the number of stations nationwide to double to 10,000 by year-end.