KUALA LUMPUR: Hong Leong Investment Bank (HLIB) research has reaffirmed its "neutral" call on the automotive sector with original equipment manufacturers, DRB-Hicom Bhd (DRB) and MBM Resources Bhd (MBMR), as its top picks for the sector.
The research house said its neutral stance despite the expected strong total industry volume (TIV) for the year, is due to expectations of a drop in TIV after high backlog orders of 200,000 units are fulfilled.
"Nevertheless, we advise investors to accumulate MBMR; buy call with target price of RM4.80 and DRB; buy with target price of RM2.00, as we expect national original equipment manufacturers (OEMs) to triumph over the longer term with potential growth from new export markets," it said in a note today.
HLIB said both national OEMs continued to lead the market with 60.9 per cent market share in 10 months of the year 2023 (vs. 58.0 per cent in 2022 and 59.4 per cent in 2021).
HLIB said new attractive electric vehicle (EV) introductions like Tesla, BYD, Haval, Neta and Chery (to introduce hybrid electric vehicle and EV in 2024), may pose a threat to the current non-national OEM incumbents, due to their attractive pricing.
It said the government has also set 2025 as a target for national OEMs to introduce affordable EV models.
To recap, Malaysian Automotive Association (MAA) reported that TIV rebounded strongly in Oct-23 to 74,900 units, which boosted YTD to 646,700 units, due to continued strong demand with attractive new model launches, high backlog orders and improved supply chains during the year, coupled with a low base effect as supply was affected by floods in Shah Alam.
The strong growth YTD was mainly driven by improved supply chains and continued strong demand.
"TIV for 2023 may achieve a new record high of 790,000 units, as we anticipate continued strong deliveries backed by the existing industry order backlogs and resilient demand for new attractive model launches. "However, we reaffirm our neutral call on the automotive sector on the risk of normalisation in 2024, " said HLIB.