The local automotive sector is in for a potentially broad recovery in the second half following zero-rated Goods and Services Tax (GST), improved consumer spending and firmer ringgit, industry players and analysts said.

Consumers are likely to take advantage of the tax-free window which will artificially drive up new vehicle sales, they added.

New vehicles sales eased 0.7 per cent to 182,229 units in the first four months of 2018, according to the Malaysian Automotive Association’s (MAA) latest data.

Bermaz Auto Bhd chief executive officer Datuk Seri Ben Yeoh Choon San said the zero-rated GST had triggered reduction in prices, at least until the SST was implemented.

“With the Raya festive coming, there will be a rush for car purchases, which will be very good for the local auto industry,” he told NSTP Business yesterday.

Yeoh said the SST reintroduction implementation was likely to have a small hike in car prices.

However, he said consumers’ confidence had already been established within the interim period of zero-rated GST.

“It will be good impact on the automotive industry and all retail businesses. Consumers spending will increase especially for those in the middle and lower income group. This could be a reflection on people who wanted to buy cars or had deferred their purchases previously,” Yeoh said.

MAA president Datuk Aishah Ahmad said the zero-rated GST will be a boon for the local automotive industry.

“Once SST is implemented, I don’t know what would be the tax rate. But if we assume at 10 per cent like before, then car prices will go up. When GST was implemented, there was a reduction of most car models in terms of duties, from 10 per cent to six per cent,” Aishah said.

Affin Hwang Capital said the sector could get a temporary shot in the arm as buyers take advantage of cheaper car prices in the absence of both GST and SST and attractive Hari Raya promotions.

“Beside the removal of GST, we believe that with improved confidence, a stronger middle income segment, lower excise duties on imported cars of more than 1,600cc, a firmer ringgit and tantalising model launches will see a broad recovery of the total industry volume (TIV) in the second half.

The Pakatan Harapan government has reduced GST rates to zero from six per cent effective June 1, while SST is expected to be reintroduced within two to three months.

MIDF Research said beyond the period, some weakness can be expected before demand normalises. This is given that purchases would have been brought forward coupled with a reintroduction of SST.

The firm said generally GST rollback was expected to put more money into consumers’ pocket, structurally lifting sentiment and spending power.

“In order to avoid a vacuum in demand between now till implementation of zero-rated GST, key auto players have decided to provide some form of GST rebate for the period leading up to June 1. Others meanwhile, have already announced price reductions (of between five and six per cent) as a result of the zero-rated GST decision.”

It added that the decision to absorb GST for 13 days to June 1 is likely to have some impact on the sector’s second quarter earnings, albeit temporary.

MIDF Research said the strong ringgit is a big positive for industry players particularly UMW Holdings Bhd and Tan Chong Motor Holdings Bhd which have big import exposure to the US dollar.

“Every one per cent change in the US dollar impacts our financial year 2018 forecast by 4.7 per cent for UMW Group and 64 per cent for Tan Chong. As Tan Chong’s earnings is close to breakeven point, its bottomline is very sensitive to forex changes,”the firm added.

Affin Hwang said automotive players were adopting a variety of pricing strategies although predominantly pointing towards lower prices.

Thus far, distributors of Nissan, Subaru and Proton have responded by offering “price protection scheme”, offering refunds and service vouchers to cover the car price fluctuation, ahead of the impending SST.

“Others, like MINI, Honda, Toyota and Volvo are cutting prices, excluding the additional six per cent GST charge. The new development alongside with the ongoing Hari Raya promotions from automakers, is likely to excite buyers to flock into showrooms again, leading to a temporary TIV boost,” it added.

For now, Affin Hwang kept its one per cent TIV growth forecast at 582,400 units this year.

It also reiterated its “overweight” on the sector, with its top pick being Sime Darby Bhd for big-cap exposure, and Bermaz Auto and MBM Resources Bhd for small-mid cap picks.

MIDF Research has Bermaz Auto as its top pick, followed by Tan Chong Motors Holdings Bhd and MBM Resources.

By New Straits Times(Published: 23/05/2018)

https://www.nst.com.my/business/2018/05/372428/broad-recovery-seen-car-sales-second-half-2018

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