KUALA LUMPUR: The automotive industry is expected to see continued sales support from the extension of the sales and service tax (SST) exemption until June 30, 2020, although the remainder of the year could prove challenging.

       In its sector update, Hong Leong Investment Bank (HLIB) Research said while sales will be boosted in 1H2022, it expects sales in the second half to be weak as consumers would have brought forward their purchases to the first half of the year.

       "We expect car sales to remain high in 1H22 averaging 60-65k units per month. However, post-SST exemption period, car sales is expected to drop to average 35-40k units in 2H22," it said.

       HLIB has a projected total industry volume of 600,000 units in 2022.

       Separately, RHB Research has a lower TIV forecast of 540,000 units.

       The research firm also believes the SST exemption until June 30 will keep demand buoyed, especially given the low interest rate environment, but added that the incentive will not be as effective as before.

       "This is because consumers intending to take advantage of the discount would have already done so during the past 18 months.

       "Beyond that, we expect TIV to taper off for a few quarters following the reimposition of the SST, before resuming growth," it said in a report.

       Meanwhile, 2022 has been touted to be an exciting year for electric vehicles (EV) given the government's exemption on duties and SST.

       RHB said the exemptions will lower the price of EVs but noted that the battery EVs will remain more expensive than typical internal combustion engine models, and will not cater to the majority of car buyers.

       Both RHB and HLIB said charging infrastructure in public areas remains a concern.

       "The mass adoption of BEV will take longer term to realise due to major concern of the availability and efficiency of charging infrastructure and the unavailability of cheap entry level BEVs," said HLIB.

       Both research firms maintained their "neutral" ratings on the automotive sector.

       Top picks for HLIB are DRB (TP:RM2.30), MBMR (TP: RM4.80), Sime Darby (TP: RM2.68) and Bermaz Auto (TP:RM.1.80) while RHB's first choice is Bermaz Auto (TP: RM1.71).