Fashion
Kenanga Research expects sales volume for the automotive sector in September to be lower than the August 2018 level with the end of the tax holiday, despite certain makes seeing reduction in prices under the sales and service tax (SST) regime.
“With the new SST gazetted on September 1, 2018, vehicles are charged 10% sales tax. Nevertheless, from the recent announcement by certain car makers, the prices for the locally-assembled and completely-knocked-down (CKD) units have dropped by 1% to 3% (compared with 6%-rated goos and services tax), whereas the prices for the completely-built-up (CBU) units have increased by 1% to 3%,” it said in a research note last Friday.
Kenanga Research believes the unexpected price decrease in locally-assembled and CKD units was attributed to the better compliance of Industrial Linkage Programme regulation, which provides incentives and duty exemption to the original equipment manufacturers that use local components under the National Automotive Policy 2014.
The research house is maintaining a “neutral” rating on the automotive sector, with Tan Chong Motor Holdings Bhd being the top pick for its turnaround in earnings after two consecutive years of losses with focus on high-margin vehicles, and expected expansion of its Indochina operations for larger market share volume.
“Our other top pick for the sector is MBM Resources Bhd, which is trading at an undemanding 6.3 times FY18 PER (price-to-earnings ratio) compared with the five-year forward average of 11 times.”
According to the Malaysian Automotive Association, Malaysia’s vehicle sales increased 27% year-on-year to 65,551 units in August, ending the historic three-month zero-rated tax holiday.
However, on a month-on-month basis, car sales dropped 4% due to Perodua’s supply disruption and run-out of popular passenger vehicle models during the first two months of the tax holiday.
