KUALA LUMPUR: Malaysia's new vehicle sales are expected to be sustainable post-Sales and Service Tax (SST) exemption period, according to Kenanga Research.
Kenanga Research believed order cancellations as a result of the government's decision not to extend the SST exemption would be minimal as the demand would still outweigh the supply.
This was due to the massive back-logged orders accumulated since last year coupled with the government commitment to absorb the SST for orders before June 30 with the Road Transport Department registration before March 31 2023.
Kenanga Research has forecast an 18 per cent growth in total industry volume (TIV) to 600,000 units this year, in line with industry body Malaysian Automotive Association's full-year TIV target.
The firm upgraded its sector call to "Overweight" from "Neutral" following the reopening of economic activities, and further driven by buoyant recovery in car sales as evident from the growing number of back-logged bookings for popular models (up to six months), with stream of new higher-margin models launched in 2022 (including models that were postponed from 2021).
Kenanga Research said the sector was trading at a trailing 12 times price earnings ratio (PER), which was a 25 per cent discount to pre-pandemic mean of 16x PER.
"We expect profits in subsequent quarters to gradually normalise to pre-pandemic levels on the back of sector earnings growth of 22 per cent in financial year 2023 which should justify sector PER to gradually reverting closer to the mean," it said.
Kenanga Research preferred players with industry leading market position, and sustainable high-margin profit models.
It liked MBM Resources Bhd given its market leading position in the national marques space, and said the player that benefitted most from high-margin new launches was Bermaz Auto Bhd (BAuto).
BAuto recently added two new marques under its stable namely Kia and Peugeot, with 18 new models including Mazda starting from the fourth quarter of 2021 until 2023.