PREPARED BY ASIA PULSE ANALYSTS (UPDATED SEPTEMBER 2008)
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OVERVIEW:
Malaysian auto sales climbed in July this year, driven by demand for compact cars as the fuel price hike a month earlier forced local consumers to shift to fuel-efficient cars.
Car sales jumped 10 per cent to 53,984 units in July from the preceding month and 20.2 per cent on the same month last year, the Malaysian Automotive Association (MAA) said.
The rise was due to good sales performance of smaller engine-sized cars, mainly Proton and Perodua, it added.
The MAA expects demand for cars with smaller engines to continue in August in view of the current consumer appetite for compact cars.
It said vehicle sales rose 25 per cent to 331,957 units in the first seven months of 2008 from 265,665 units in the previous corresponding period.
In July 2008, total industry production soared 28.3 per cent to 51,531 units from 40,149 units in the same period last year.
Total production in the first seven months of this year was 26.9 per cent higher at 314,753 units as against 247,975 units in the same period last year.
Of the total, passenger cars accounted for 287,248 units while the balance of 27,505 units were commercial vehicles.
OUTLOOK:
However, industry officials and analysts remain cautious on the outlook for the rest of the year.
The domestic auto sector is bracing for a challenging period as demand for cars and commercial vehicles may be adversely impacted by high inflation and soft economic growth.
MAA expects total industry volume (TIV) sales figure in the second half of this year to decline 16.5 per cent compared with the first six months. That means 45,874 units fewer than 277,973 vehicles sold in the first six months of the year.
The association, however, is maintaining its full year TIV target of 510,000 units.
MAA expects sales of passenger vehicles to be almost flat year-on-year in the second-half period. However, it forecasts demand for pick up trucks and delivery vans to plummet 28 per cent, a sign that the domestic economy may be slowing down.
MAA president Datuk Aishah Ahmad said the association would have lowered its sales forecast for the year had the central bank, Bank Negara Malaysia, raised interest rate to rein in inflation.
Many analysts expect sales volume to dip towards the end of the year, citing factors such as tightening of credit for car buyers amid deteriorating economic outlook.
RHB Research Institute said consumers would likely hold back big-ticket purchases, including new cars, amid rising inflationary pressure.
Analysts noted that Malaysia's consumer sentiment index compiled by the Malaysian Institute of Economic Research (MIER) plunged to an all-time low in the second quarter after the government raised petrol and diesel prices by 41 per cent and 63 per cent respectively in early June.
Many consumers now have a lower disposable income due to higher grocery bills and petrol prices as well as stagnant wages.
Automakers including Honda Malaysia Sdn Bhd and UMW Holdings Berhad (KLSE:4588) also expect a slowdown in auto sales in the second half of this year.
UMW predicts total industry volume for motor vehicles to taper following the hire purchase interest rates hike and fuel price increase.
"Nevertheless, the group is well-positioned to meet consumers' preference for more fuel-efficient vehicles, with our range of models in the medium and small passenger car categories," it said.
Honda Malaysia's managing director and chief executive officer Atsushi Fujimoto said: "The overall market is expected to go down in the second half of 2008. The fuel price hike in the first half had forced Malaysian consumers to look for fuel-efficient cars, a feature that is well associated with Honda cars."
He expects industry sales of 520,000 units this year, 10,000 more than the MAA's forecast of 4.7 per cent expansion to 510,000 units from 487,176 last year.
Fujimoto is upbeat about his own company's sales. He said Honda Malaysia has revised its sales forecast upwards and expects to sell 35,000 cars this year up from the previous estimate of 33,000 units.
He said Honda vehicles are likely to make up 6.5 per cent of the overall market share.
As more Malaysian consumers turn to fuel-efficient cars, Honda believes it will sell more hybrid cars, especially with the waiver of import and excise duties for fuel-efficient hybrid cars, announced in the recent government's budget for 2009.
Honda Malaysia is one of only two domestic carmakers offering hybrid cars. The other company is Premier Hybrid Cars Sdn Bhd.
Premier Hybrid chairman Datuk Shahrin Zahari said the tax break is a big boost for the infant hybrid sub-sector.
"We are now expecting more players in the marketplace," he said.
MAJOR PLAYERS:
Proton Holdings Bhd (KLSE: 5304), Malaysia's national carmaker, is back in the black in the first quarter of its current financial year, helped by strong sales of its main models, Persona and Saga.
It posted a net profit of RM52.03 million in the quarter to June 30 2008 against a loss of RM46.75 million in the same period last year.
Revenue rose 49.5 per cent to RM1.71 billion from RM1.14 billion.
Proton also saw its overall vehicle sales increase 41.72 per cent to 39,888 units from 28,145.
"This is the fourth consecutive quarter of profitability for Proton as the company ramps up its strategy to recapture its leading position in the local automotive market," Proton chairman Datuk Mohammed Azlan Hashim said.
He said the results demonstrate the company's ability to turn around in a competitive market and proves that its strategy of having "the right car at the right price and at the right time" is working well.
The company expects to sustain the performance for the rest of the financial year.
As of 31 July 2008, Proton's share of the domestic passenger car market is 33.8 per cent, with 86,388 registered cars in the country.
Proton's much-awaited MPV model is slated for launch early 2009.
Perusahaan Otomobil Kedua Sdn Bhd (Perodua), the country's largest car company by sales, expects to capture nearly 32 per cent of the market in 2008. This is slightly down from Perodua's 33 per cent share in 2007.
But the expected Perodua volume of about 170,000 units for this year will be higher than about 160,000 units last year.
"We have sold about 100,000 cars in the first seven months," managing director Datuk Syed Hafiz Syed Abu Bakar said.
The company's Myvi accounted for 52,724 units of the 100,000 units.
Hafiz said July 2008 was the best month in the history of the company with total sales of more than 17,000.
The Myvi, the country's number one car model in the past three years, had its best ever monthly sales in July at about 8,500 units.
The enhanced Myvi is expected to continue the model's dominance.
But Hafiz said the gap between Perodua and its rivals is expected to narrow further after this Hari Raya season in October, as car manufacturers usually resort to heavy promotions to boost or maintain sales in the slow year-end months.
"We already anticipated this to happen when our competitors launched new models and slashed the selling price of their outgoing models," he said.
UMW Holdings Berhad, the assembler of Toyota cars, has registered second quarter pre-tax profit of RM354.998 million, up 111.5 per cent from a year ago.
Revenue rose 42.5 per cent to RM3.57 billion from RM2.50 billion previously.
"Strong profit posted by the automotive segment as a result of higher Toyota and Perodua vehicle sales, robust performance from the equipment segment and favourable foreign exchange rates accounted for the higher group profit before taxation for the current quarter ended 30th June 2008," UMW said.
UMW said it sold 138,501 units of Toyota and Perodua in the six months to 30 June 2008, representing 49.8 per cent of the total industry volume of 277,974 units.
Tan Chong Motor Holdings Bhd (KLSE:4405), which assembles and retails Nissan cars, has booked a net profit of RM68.1 million for its second quarter ended 30 June 2008, more than triple that of the RM21.9 million in the previous corresponding period.
The improved earnings were made on sales of RM784 million compared with RM430 million previously.
Tan Chong said "demand for Nissan vehicles outstripped supply in the first half of the year, giving the group an unprecedented period of brand acceptance."
That enabled the group to lift its market share to 5.4 per cent in the first half from 3.8 per cent in the previous corresponding period.
Tan Chong attributed the growth in its net profit margin to 8.7 per cent in the second quarter from 7.1 per cent in the preceding quarter in spite of rampant cost-push inflation.
"Almost three months after the fuel price hike in early June, our daily bookings in June to August are still at a comfortable range of 100 to 150 units and our ability to timely deliver quality products has improved with the second shift," it added.
Although the MAA forecast the total industry volume to drop in the second half of 2008, Tan Chong said: "We endeavour to buck the industry trend."
Its directors have approved an investment of RM120 million to expand the Serendah plant capacity to 53,760 units a year from 28,800 currently.
GOVERNMENT POLICY:
The Malaysian government's budget for 2009 has several incentives for the domestic auto sector.
One of them is the waiver of import and excise duties for fuel-efficient hybrid cars. Another incentive is the reduction of the road tax structure for diesel-powered vehicles for private use, making it level with that of petrol-fuelled vehicles, effective from September.
Datuk Seri Abdullah Ahmad Badawi proposed the exemption of the 100 per cent import duty and 50 per cent excise duty imposed on fully-imported hybrid cars with engine capacity below 2,000cc.
The two-year exemption for franchise holders is to help them prepare for the local assembly of such cars, Abdullah said.
Motor vehicles from Asean countries now have zero import duty, while those from non-Asean nations are slapped with 30 per cent import duty.
There are also local excise duties of 60 to 105 per cent on Asean and non-Asean vehicles, on top of another 10 per cent sales tax.
Meanwhile, the International Trade and Industry Ministry is reviewing the National Automotive Policy (NAP) for consideration by the Cabinet before year-end.
Minister Tan Sri Muhyiddin Yassin said the NAP, introduced by the government in March 2006, was biased towards protecting the local automotive industry and did not encourage the overall development of the industry.
He said Malaysia had missed many opportunities because of the NAP as many potential investors had diverted attention to other countries in the region.
"The policy seems to be too protective. It does not encourage development of the industry as a whole," he said.
KEY INDICATORS:
PROJECTED TOTAL LNDUSTRY VOLUME (UNITS)
1) 2O09, 2) 2010, 3) 2011
Passenger vehicles 1) 481,000. 2) 499,000. 3) 512,000.
Commercial vehicles 1) 49,000 2) 51,000 3)53,000
Total industry volume 1)530,000. 2) 555,000. 3) 565,000.
Growth (%) 1) 3.9. 2) 3.8. 3) 2.7.
(Source: Malaysian Automotive Association)
CONTACTS:
Malaysian Industrial Development Authority (MIDA)
Block 4, Plaza Sentral
Jalan Stesen Sentral 5
Kuala Lumpur Sentral
50470 Kuala Lumpur
Malaysia
Tel: 603-2267 3633
Malaysian Automotive Association
Tel: 603-7955 0454
Fax: 603-7955 0954
Proton Holdings Bhd
Tel: 603-5191 1055
Fax: 603-5191 1252
Website : www.proton.com.my
Perodua Sales Sdn Bhd
Tel: 603-6092 8888
Fax: 603-6733 0289
Website : www.perodua.com.my
(Sources: Malaysian Ministry of International Trade and Industry, Malaysian Automotive Association)
SOURCE: Copyright (C) 2008 Asia Pulse. All rights reserved
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