Cautious outlook ahead for auto stocks
PETALING JAYA: Automotive stocks continue to be weighed by a cloudy outlook for vehicle sales, with both national and non-national marques showing declines, according to figures released by the Malaysia Automotive Association (MAA) for June.
Analysts covering automotive stocks remained cautious about the outlook as sales in the first half of the year dropped nearly 5% compared with the similar period a year ago.
UOB Kay Hian (UOBKH) Research has maintained an 'underweight' call on automotive stocks, as competition remained intense with limited margin recovery and earnings upside.
Its top pick remained Pecca Group Bhd , a producer of car seat covers, in which the research house has a 'buy' call and a target price (TP) of RM1.68.
UOBKH Research noted that automotive stocks' valuation of 11.8 times was fair, given the muted earnings outlook and limited catalysts with upside potential likely capped in the near term.
TA Research has maintained a 'neutral' recommendation, with the TIV forecast for this year of 700,000 units under review (MAA projected 780,000).
The research house has a 'hold' call on Sime Darby Bhd with a TP of RM1.66, and 'sell' ratings on MBM Resources Bhd with a TP of RM4.31 and Bermaz Auto Bhd with a TP of 75 sen.
Hong Leong Investment Bank (HLIB) Research, which has also maintained a 'neutral' stance on the stocks, pointed to intense competition from the entry of multiple new electric vehicle players challenging non-national marques amid competitive pricing strategies.
It revised the total industry volume up to 770,000 from 750,000 for this year compared with 818,000 last year.
Despite the challenges, the research house expected the market to normalise and saw upside potential, supported by exciting new model launches throughout the year and intensified marketing efforts by original equipment manufacturers aiming to sustain sales, albeit likely at the cost of margins.
'Order backlogs continued to decline in the second quarter of 2025 and are expected to soften further in the coming quarters, in line with weakening consumer sentiment amid a slowing economic outlook and the anticipated petrol subsidy rationalisation in the second half of 2025,' the research house said.
HLIB Research projected automotive earnings to decline this year, driven by lower sales volumes and higher operating costs from more aggressive promotional activities but this would be partially offset by a stronger ringgit against the US dollar and Japanese yen.
According to the research house, its top pick is MBM Resources with a 'buy' call and a TP of RM7.10, supported by exposure to national marques under Perusahaan Otomobil Kedua Sdn Bhd and dividend yields.
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