PETALING JAYA: Despite an expected strong total industry volume (TIV) recovery in the fourth quarter of this year for the automotive sector, this is expected to fall by the middle of next year due mostly to the ongoing global microchip issue.

       Hong Leong Investment Bank’s (HLIB) research arm said it expects TIV to drop post-sales and service tax (SST) exemption expiry by the middle of next year, and therefore, was maintaining its “neutral” call on the sector.

       “Nevertheless, we advise investors to accumulate MBM Resources Bhd and DRB-Hicom Bhd as we expect national original equipment manufacturers (OEMs) to triumph in the longer-term with potential growth from new export markets.

       “We also like Sime Darby Bhd for its strong balance sheet and leverage to the China market rebound,” it said in a report.

       Citing data from the Malaysian Automotive Association (MAA), it said there was continued month-on-month recovery of 43.4% to 63,500 units in October TIV as industry players ramped up production since mid-August to clear the current high order backlog.

       “On a year-on-year basis, it was a growth of 10%.

       “We expect TIV to sustain at this high level until year-end.

       “This is on OEMs maintaining their production level to meet the current order backlogs and the expected year-end sales.

       StarCarSifu

       “The extension of the SST exemptions to June 30, 2022 has provided the industry some leeway to better plan their production lines over a longer period as demand remains robust while supply is being constrained by the ongoing global microchip supply shortage in the near-term,” it said.

       The research outfit added that it had revised its TIV forecast to 500,000 units from 480,000 for 2021.

       Meanwhile, RHB Research in its report said downside risks to the sector’s recovery included persistent shortages of key components and delays in new model launches.

       “With a mutating Covid-19 and rising cases globally, we cannot rule out further rolling lockdowns ahead still.

       “This, we believe, will trigger downside risks,” the research house said.

       It added that other downside risks included the tightening of bank approvals for car loans and a sharp weakening of the ringgit.

       Similar to HLIB, it also has a “neutral” call on the automotive sector.

       Its financial year 2022 TIV forecast of 540,000 units implies a 15% year-on-year growth, accounting for the SST extension to June 2022.

       This is to be followed by a gestation period after the long SST exemption period of 24 months that started in July 2020.