Automotive sector faces mixed signals
PETALING JAYA: Earnings of companies in the automotive sector in the recently concluded first quarter of 2025 (1Q25) came in below expectations again, says Kenanga Research.
The research firm said earnings were weighed down by external factors and intense competition in the non-national space, where market share is fragmented for vehicles above RM100,000.
For example, it noted that Chinese carmaker Chery has started to build its 100,000 capacity unit plant in Hulu Selangor, which would further disrupt the non-national space. Meanwhile, Malaysia's second national carmaker Perodua's back-loaded production to newer models is expected to be launched in the second half of 2025.
'If the intense competition further ramps up with mass localisation of foreign brands, this may result in the market becoming even more fragmented and may weigh on the valuation for other (auto) players,' said Kenanga Research in a report.
Currently, only the Chery brand has a concrete completely knocked down or CKD localisation programme, while TQ-Wuling Bingo, an electric car under the Tan Chong Motor group, is looking to do semi knocked-down or SKD.
On automotive companies, the research firm said Tan Chong Motor Holdings Bhd's losses were within expectations, as it had anticipated the continued sales volume decline of its bread-and-butter Nissan vehicles. This is compounded by the volatile overseas operating environment, and unfavourable foreign-exchange movements and sales mix.
Over at Sime Darby Bhd , its core net profit plunged 11% for the nine months of financial year 2025, dragged by weaker sales and margins for both industrial and automotive segments which overshadowed the robust consolidation of UMW Holdings Bhd 's earnings.
As for DRB-Hicom Bhd , core net profit plunged largely due to worsening auto sales and margins, wider sequential quarter losses at its postal and property segments, plus lower profit recognition under the group's banking segment.
Touching on Bermaz Auto Bhd (BAuto), it said the company's core net profit halved as vehicles sales volume plummeted on lower margins, which was partially offset by maiden sales of Xpeng vehicles.
'Margins may also face compression risk assuming the yen strengthens amid a hawkish Bank of Japan stance,' Kenanga Research said, adding that the re-rating catalyst for the stock would be the local assembly of the Xpeng and Deepal brands of electric vehicles boosting volume and margins.
For 2025, Kenanga Research envisions a 'two-speed automotive market' where it will be business as usual for the affordable segment.
'Our 2025 total industry volume (TIV) forecast of 805,000 units will be driven by the forward buying interest on the deferment of new excise duty regulations to end-2025. We expect Perodua to benefit the most at 44% TIV market share with the highest localisation rate as well as attractive new launches.'
With the downgrade in its sector heavyweights such as Sime Darby and DRB-Hicom, it downgrades the auto sector rating to 'neutral' from 'overweight'.
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