PETALING JAYA: The automotive sector should see a sustainable recovery, albeit delayed, after the government’s economic relaxation measures included the re-opening of plants and the resumption of operations for distribution and retailing from Aug 16, according to MIDF Research.

       “This is a significant positive as it essentially means the entire automotive value chain will be back in operations this week onwards,” said the research unit.

       MIDF Research also pointed out that completely-knocked-down kits are now well in stock, given that shipments were still incoming despite the lockdown, which should support a production ramp-up to partly recoup production loss in the past two-and-a-half months.

       Outstanding orders are strong with two to four months of outstanding bookings prior to the lockdown, while pent-up demand is likely to return, supported by the tax holiday which runs till Dec 31, 2021.

       “We see room for automotive plants to increase production shift cycles once they meet full operating capacity requirements by end-August,” said the research unit.

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       It added that Klang Valley, which is one of the key demand centres accounting for 41% of total industry volume (TIV), has achieved 64.7% vaccination rate, which should enable meaningful return of consumers to showrooms.

       In total, states that have achieved over 50% vaccination rate account for 53% of TIV.

       Based on its checks with several listed automotive companies, MIDF Research said the industry’s workforce (inclusive of plant workforce) are already over 90% fully vaccinated, which is well higher than the respective state-level vaccination rates.

       This is attributable to the Public-Private Partnership Industrial Covid-19 Immunisation Programme (Pikas).

       However, part of the workforce may still need to complete the 14-day post-second dose requirement, suggesting production may see gradual ramp-up from now till end-August.

       The rapid progress in vaccination rate lends visibility to the country’s 80% vaccination target by October 2021, which in turn, underpins a sustainable recovery, according to the research unit.

       It has “buy” calls on Bermaz Auto Bhd with a target price of RM2.20, MBM Resources Bhd (RM4.20) and UMW Holdings Bhd (RM4.30).

       “The simultaneous re-opening of automotive retailing should accommodate further build-up of outstanding bookings in our opinion, underpinned by the tax holiday till year-end, cash transfers under the fiscal stimulus programmes and a low interest-rate environment,” said MIDF Research.