STABILISING LOAN APPROVALS & STRONGER RINGGIT TO DRIVE AUTO STOCKS

PETALING JAYA – Automotive stocks are expected to perform better in the second half of 2017, driven by stabilising loan approvals, car launches and further strengthening of the ringgit.

MIDF Research in a report yesterday said loan approval rates had stabilised between 50% and 60% over the past 12 months, with car loan application trends showing improvements due to steady demand.

The research house also said auto players had become more creative with their financing solutions, such as offering lower monthly repayments.

“The idea is to lower the monthly commitment of car buyers, allowing them to better qualify for financing, as approval by financial institutions places high priority on a borrower’s monthly loan commitment relative to his net monthly income.”

MIDF said sector earnings recovery will be underpinned by more favourable foreign exchange that will lower import cost.

“Imported components account for 25% to 35% of total cost for the non-national makes. The ringgit has strengthened from the year low of RM4.50 to the dollar to the current RM4.30 levels.”

Similarly, the research house said the ringgit had also strengthened against the yen.

“All the auto players under our coverage will benefit from the stronger ringgit, namely Bermaz Auto Bhd (BAuto), mainly from the yen and UMW Holdings Bhd and Tan Chong Motor Holdings Bhd from the weaker dollar.

“For BAuto, every 1% change in the yen will impact 2018 earnings by 3%. For UMW and Tan Chong, every 1% change in the dollar will impact 2017 by 6.5% and 35% respectively.”

Among the key new models to come, said MIDF Research, are Mazda’s new CX5 and CX9 (in October and this month respectively), Toyota’s indicative four new models (all in the second half of 2017) and possibly a new Myvi from Perodua (later this year).

“We expect these launches to drive a marked improvement in total industry volume (TIV) from July onwards.”

The research house added that the downward consensus earnings revisions in the past two years have reached a bottom and has in fact rebounded for selective stocks, such as UMW and BAuto.

“This upward revision was driven largely by expectations of a rebound in sales volumes but has yet to factor in improvements in forex expectations, suggesting further possible upside to forecasts if the ringgit strength sustains.”

According to the Malaysian Automotive Association (MAA), year-to-date May vehicle sales rose 7% to 234,186 units compared with 218,121 units in the first five months of 2016.

The MAA projects a 1.7% year-on-year TIV growth to 590,000 units this year, and will have its second biannual briefing on local vehicle sales performance this month.

TIV hit 580,124 units last year, meeting the association’s target of 580,000 units for 2016. The last time TIV fell below the 600,000-mark was in 2009 with 536,905 units.

In 2010, sales hit 605,156 units. Vehicle sales hit a record-breaking 666,674 units in 2015.

– ANN

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