MIDF maintains positive outlook on automotive sector

Consumer spending in automotive industry could improve with the reduction of OPR.

KUALA LUMPUR: MIDF Research has maintained its positive stance on the automotive sector amid interest rate cut by Bank Negara Malaysia (BNM).

In a note today, MIDF said yesterday’s decision by the BNM to cut overnight policy rate (OPR) by 25 basis point to 3% has the potential to improved consumer spending.

“The total industry volume (TIV) growth had an inverse relationship with OPR. An OPR hike had a dampening impact on TIV growth and vice versa if OPR is cut, given improved consumer spending and basically lower hire purchase rates,” it said.

As of the first quarter (Q1) of 2019, the automotive sector registered a year-to-date growth of 6%, driven mainly by new national car SUV launches.

Against an inflated base, especially in 3Q18, MIDF however, forecasts a flattish 0.2% 2019 TIV growth at the point (pre-OPR hike).

It also said the margins of auto players could be negatively impacted by a potentially weaker ringgit as a result of the OPR cut, despite the potentially stronger consumer spending (and potential upside to TIV forecast).

Meanwhile, AmInvestment Bank has maintained its “neutral” call on the automotive sector and believed yesterday’s rate cut would not be a catalyst for growth in the sector, unlike the three month tax holiday period in 2018.

In the research note today, AmInvestment said the Malaysian automotive industry continues to face headwinds with lingering issues

The sector is expected to remain challenging in a competitive business environment.

“We look forward to the anticipated revised National Automotive Policy 2019 (NAP 2019), expected to be announced in Q2 2019 which will set the long-term direction of the automotive ecosystem, and will also include the direction of the third national car development,” it said.

The adjustment to the OPR according to the bank, was intended to preserve the degree of monetary accommodativeness amidst signs of moderation in economic activity from a slowdown in global demand and growth of key trading partners.