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Thursday, January 23, 2014

National Automotive Policy 2014 fails to lift auto stocks

Published: Wednesday January 22, 2014 MYT 12:00:00 AM 
Updated: Wednesday January 22, 2014 MYT 9:26:33 AM

PETALING JAYA: There was little cheer for automotive stocks on Bursa Malaysia with many key policies of the National Automotive Policy 2014 (NAP) already known to market players.

Most of them ended the day just marginally higher like Tan Chong Motor Holdings Bhd which gained five sen to RM5.65 while MBM Resources was up two sen to RM3.43.

DRB-Hicom Bhd edged up one sen to RM2.78, and APM Automotive Holdings Bhdinched up two sen to RM5.74 while UMW Holdings Bhd gained 4 sen to RM11.62.

Numerous research houses including CIMB Research, RHB Research, Maybank Investment Bank Research and MIDF Research were neutral on the automotive sector, and said many of the key policies were already known before the announcement.

“The NAP was somewhat anti-climatic as the key policy thrusts had already been well-signalled to the market.

“The success of the policy will depend on whether the global original equipment manufacturers are sufficiently convinced to begin making more significant investments in Malaysia.

“The trickle-down impact to the auto parts industry will take time to materialise,” saidRHB Research analyst Alexander Chia in a report.

He said the operating environment for automotive manufacturers in 2014 would remain challenging.

“While we expect domestic demand to stay resilient, intense market competition and increasingly price-sensitive consumers could impact margins. Overall, we think the sector valuations are fair and see few catalysts to re-rate the sector higher,” he said.

CIMB Research analyst Lucius Chong said the NAP, after an 18-month delay, was a disappointment, as it did not contain an end-of-life vehicle (ELV) policy and extended the timeline to end the open approved permit (AP) system.

He said Tan Chong was the only clear winner from NAP 2014 as it was already prepared to move from selling Serena hybrid completely-built-up units to completely-knocked-down units this year and was looking forward to the launch of an A-segment vehicle, which was likely to be an energy-efficient vehicle (EEV), in 2015.

“We are only positive on Tan Chong. Investors should be wary of the overly optimistic industry sales forecast of one million units by 2020 from 650,000 in 2013. There will likely be two MRT lines operating in the Klang Valley by then,” he said.

Maybank Investment Bank Research analyst Ivan Yap said the intention to make Malaysia a regional hub for EEVs was noble “but we think it still lacks clarity for now.”

“Overall, our focus now shifts to the impact of goods and services tax (GST) on car prices, which remains unclear at present.

“We see potential downside to our 2014 total industrial volume forecast if car prices turn out to be significantly lower under the GST regime, holding back buying interest ahead of the GST implementation in 2015,” he said.

AmResearch also highlighted that DRB-Hicom’s unit Proton Holdings Bhd would benefit from the absence of a cut in excise duties.

“Nonetheless, Proton still needs to further improve quality and standards as well as in price competitiveness,” he said.

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