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Supply Chain’s Gradual Recovery And New Myvi Model Bode Well For The Automotive Industry In 2H11
Malaysia Perspective | 05 October 2011

By Birdy Law

Even though the Malaysian automobile manufacturers have turned in a lacklustre latest quarter with mixed results, analysts believe that, with the global supply chain disruption caused by the natural disaster in Japan gradually recovering, and the encouraging demand for the new Myvi, coupled with interest rates expected to remain low, the auto industry is expected to rebound over the second half of the year.

However, analysts also warned that with the volatility in the external economic environment, compounded by the persistently high inflation globally, Malaysia’s domestic economy will feel the impact and consumer appetites will be dampened. Car sales will, in the mean time, still be faced with the adverse effects of exchange rate fluctuations in the ringgit, among others.

In terms of the global automobile market, world renowned rating agency Moody’s analytics predicts that a weaker macroeconomic fundamentals over the next 12 to 18 months will put a brake on the global demand for small cars, which would consequently translate to lower profits for the auto industry.
“For this reason, we are adjusting our outlook for the global automobile market from ‘Positive’ to ‘Stable’. Specifically, we are revising our original demand growth forecast for 2011 from 5.1% to 3.5%, and for 2012 from the original 7.4% to 6.5%.”

Malaysia’s domestic automobile market outlook is however trending contrarily. Researchers at Societe Generale Research hold the opinion that with the recovery of the Japanese automotive supply chain and Malaysia expecting to keep interest rates low, the Malaysian car market is expected to perform better in the second half of the year than the first.
Societe Generale Research pointed out that according to the latest quarterly financial reports, only Tan Chong Motor, APM Automotive Holdings and DRB Hicom, from among the 6 closely-watched car companies, posted results that are in line with forecast. One of the main reasons is that the new car loan law that came into force on June 15 has prolonged the process of new car registrations.

MBM Resources, UMW and Proton posted results that Societe Generale Research called “dismal”.

However, as the industry gradually adapt to the new car loan law and the global automotive supply chain gradually recovers (monthly automotive production in July grew by 25.1%), “car sales in 2H 2011 is expected to rebound strongly, driven by pent-up demands.”
Statistics show that car sales over the first seven months of this year hit 347, 455; Societe Generale Research is predicting that the total annual vehicle sales will reach 616,000.

Another reason why the rosy outlook for car sales is expected in the second half of the year is that the bookings for Perodua’s new Myvi has exceeded 30,000 units. Also, “it appears that interest rates will remain stable over the next six months, and car loan interests are also expected to remain at an attractive level.”
Societe Generale Research predicts that by 2012, the overall Malaysian car sale volume is expected to hit 644,000, which would translate to an annual growth rate of 4.5%.
As for the stock prices, auto stocks are still currently off 14% from their 2011 peaks. Societe Generale Research expressed that “in the next three to six months, auto stocks will have relatively limited room to fall any further.”

Societe Generale Research identified Tan Chong Motor (TCHM) as the most promising stock to watch, because “it is undervalued but boasts a strong product line, which will allow TCMH to secure a higher market share.”

“We are also optimistic about DRB-Hicom, for the company’s profit has reached a new turning point. We are not placing our bet on Proton, because the planned transformation of their wholly-owned subsidiary, Lotus, still carries a high executional risk.”

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