PETALING JAYA: The six-month extension to the 100% sales tax exemption on locally assembled or completely knocked-down (CKD) cars and 50% on imported or completely built-up (CBU) cars to June 30, 2021 under the short-term national economic recovery plan (Penjana) is expected to augur well for the sector.
Kenanga Research opined that this positive surprise for automakers and consumers should prompt a buying frenzy over the next few months and relieve the backlogged bookings.
“The sales tax exemption has resulted in reduced prices for passenger cars, although pick-up trucks are not eligible as they are classified as commercial vehicles,” it said in a report.
The research house envisaged a stronger recovery for the sector in 2021, with a total industry volume (TIV) target of 585,000 units, a 17% increase year on year.
It believes the new volume launches in the final quarter of 2020 – Proton X50, Honda City and Nissan Almera – could help improve consumer sentiment with back-logged booking to overflow into 2021 and boosted by the exemption extension, along with seasonal promotions and new launches in second-half 2021 (H2’21).
“Overall, the 2021 could potentially be a better year supported by the new launches in 2021 (e.g. Perodua D55L) along with better incentive programme under National Automotive Policy 2020, positive impact from the overnight policy rate cut and pre-emptive measures to assist those whom might be financially challenged by Covid-19 impact,” said Kenanga Research.
For the coming year, it holds the view that an expected global growth recovery and the impact of the large fiscal stimulus on the domestic economy would result in a projected growth rebound in gross domestic product (GDP) to 6.1% compared with GDP growth forecast of -5.1% in 2020.
Following the earnings upgrade for the SST-exempted sales extension, the research house have upgraded the sector’s call to overweight from neutral.
Similarly, TA Research believes the extension will provide a boost in car sales next year, as the initial sales exemption period from July to November saw a 14.5% growth (year on year). With that, the research house has increased its TIV projection by 5.9% to 627,000 units.
Accordingly, it adjusted earnings of companies under its coverage higher by 2.8% to 15.7% after factoring in higher car sales assumptions. This has raised 2021 sector earnings by 5.8%.
Consequently, TA Research has upgraded its call from neutral to overweight for the automotive sector.
“Coupled with other positive drivers such as economic recovery and the accommodative interest rate environment, the automotive industry is set to recover from Covid-19 next year,” it said.
Aside from the positive developments arising from the tax exemptions, PublicInvest Research pointed out the loan approval rate has shown improvement in the second half of this year and it believes more relaxed measures from the banks could help to partially spur sales volume demand.
For 2021, it forecast TIV to increase by 6% to 500,000 units, supported by new and facelifted models, coupled with low financing rates.
“Nevertheless, we expect consumer sentiment to remain weak due to an uncertain economic environment that may curb spending on big-ticket items, hence retain our neutral stance on the sector,” said the research house.
It also believes that valuations on auto stocks have already priced in the positive development, as the sector is currently trading at 20x forward PER, compared to 5-years average PER of 14x. “Hence, valuations appear unattractive, in our view.”
