RHB IB Maintains 'neutral' Recommendation On The Automotive Sector

KUALA LUMPUR 18 April (Bernama) -- RHB Investment Bank Bhd (RHB IB) has maintained a 'neutral' recommendation for the automotive and automotive components sector.

In a research note today, the investment bank expects the sector's performance to continue declining in line with the current economic cycle, due to the absence of catalyst factors capable of driving sales and revenue to new record highs.

"We adopted a meticulous selection strategy and subsequently chose companies capable of weathering the sector's downturn phase, with Sime Darby as our top pick.

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"We like Sime Darby because it is well-positioned to face the rationalisation of RON95 subsidies, given its wide range of electric vehicles (EVs), while Perodua provides a buffer against the increasing competition among non-national brands," said RHB IB.

The bank also expects that the allocation of RON95 subsidies will still be implemented, but is likely to be postponed, as the full eligibility criteria, originally planned to be announced in the first quarter of 2025, have not yet been revealed.

"We have been informed that MyKad will be used together with the two-tier pricing system, although this system has the potential to be misused.

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"Furthermore, the top 15 per cent (T15) classification, which refers to the group not eligible for subsidies, is still under review. This may cause the launch to be delayed until after mid-2025," it shared.

According to RHB IB, although policy details remain unclear, the move is expected to increase the cost of car ownership, encourage the adoption of electric vehicles (EVs), and cause some buyers to switch to cheaper brands, given the limited availability of affordable EVs in the market.

The bank added that the direction of EV adoption in the country also remains uncertain, particularly regarding the exemption of import and excise duties on completely built-up (CBU) EVs, which is scheduled to end in late 2025.

"The termination of tax exemptions for CBU EVs aligns with the government's aspiration to attract original equipment manufacturers (OEMs) to manufacture and assemble their EVs in local factories, considering that completely knocked-down (CKD) EVs will continue to enjoy tax exemptions until the end of 2027.

"However, these developments may affect EV adoption in Malaysia, as most EVs currently on the road are imported," it said.

Additionally, the bank noted that the short-term policy also creates uncertainty among OEM companies, as they prefer a clearer long-term policy direction before making decisions to establish manufacturing plants in the country.

Meanwhile, RHB IB said the issue of the open market value (OMV) review policy for calculating excise duty on CKD vehicles also adds to market uncertainty.

"Originally, the calculation was based on manufacturing costs, but the OMV review might include sales-related expenses, potentially increasing car prices by 10 to 30 per cent if enforced in January 2026.

"This may cause a temporary surge in car sales before the new excise duty takes effect, although opposition from Malaysian car manufacturers might influence the final decision regarding this policy change," it said.

In terms of sales, the total industry volume (TIV) for the first two months of this year decreased by 14.3 per cent year-on-year (y-o-y), with the TIV for March expected to rise month-on-month due to Aidilfitri promotions.  However, the TIV for the first quarter is still projected to be weak y-o-y.

"TIV for 2025 is projected at 730,000 units, an 11 per cent y-o-y decline. This figure is consistent with the TIV performance seen so far this year and reflects the high base effect from the previous year," RHB IB added.

--BERNAMA