Thursday, May 17, 2018

FW: MY Automotive (POSITIVE) - A 6% increment for all, more or less.



Another happy day! GST has been zero-rated and I am going car shopping! Well, maybe just window shop…


MY Automotive (POSITIVE) – A 6% increment for all, more or less…

  • A positive boost to sentiment. The new Pakatan Harapan (PH)-led Government yesterday announced the zero-rating of the 6% Goods & Services Tax (GST) effective 1 June 2018. This does not apply to goods and services where the 6% GST has been exempted, where the exemption stays; technical, in our view. The announcement from the Ministry of Finance did not mention on the re-implementation of the Sales and Services Taxes (SST); we expect another announcement to be made on this as SST re-introduction can only be done via Parliament. The zero-rating of GST represents the first delivery of the 10 promises for the first 100 days, by PH, in its GE14 manifesto.
  • Autos to benefit. Assuming that Sales Tax (10% prior to the adoption of GST) would not return to replace the GST in the meantime, we believe that new/recon car prices should be cheaper by ~6%, effective 1 June 2018. We are positive on this new development as it should help to boost TIV sales beginning 2H18 to catch up with our 2018 TIV forecast of 595k units (+3% YoY); 1Q18 TIV was down 4% YoY to 135.1k units. However, we caution that sales in May (pre-GST zero-rating) could fall drastically as consumers hold back their purchases.

With the uncertainty in timing of the SST returning, we believe that consumers already with intention to purchase would first consider newly released models (i.e. Nissan Serena S Hybrid, Toyota C-HR, Subaru XV, Mazda CX-5, Perodua Myvi, amongst others) to lock in their prices. Should the waiting list for primary choices be too long (exceeding 3 months), consumers may turn to  other existing model offerings available in order to lock in their purchases - car dealers/distributors with excess inventories (i.e. Nissan, Proton) may be able to clear dated models in the near-term post GST zero-rating.

Ahead of Hari Raya Aidilfitri, auto players typically engage in price war (via discounts and freebies) to boost sales, sacrificing margins during the period. However, with this announcement, price war ahead of this year’s festivity (a month from now) may not be as intense as it will take less efforts/incentives to convince buyers to make their purchases. This should translate to slightly better auto margins in the upcoming period compared to the year before.

  • Our stock/sector ratings are unchanged. We remain POSITIVE on the auto sector, premised on a slight TIV recovery boosting auto earnings which would also benefit from stronger MYR against USD and JPY this year. Bermaz (BAUTO MK, TP: MYR3.25) is our Top sector BUY for stronger sales coming from new model offerings. We also have BUYs on TCM (TCM MK, TP: MYR2.15) for trough valuations, Pecca (PECCA MK, TP: MYR1.60) for exposure to Perodua.




Ivan Yap | Analyst, Equity Research

Maybank Investment Bank Berhad (15938-H)
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