Kenanga keeps neutral on automotive sector

KUALA LUMPUR: Kenanga Research has maintained its 'neutral' call on the automotive sector with selective buys, although the growth rate for the 2014 total industry volume is seen moderate at two per cent year-on-year.

It said this is due to rising living costs which could dampen consumer spending behavior, especially on durable big-ticket items such as cars.

"We are mildly positive on the announcement of the revised National Automotive Policy earlier this year, which aims to further liberalise the sector and resolve the structural issues.

"But we reckon that the fruition will not be seen in the short-term given the gestation period for the restructuring," Kenanga Research said in a note.

The research house said consumers will be more sensitive to pricing, preferring cheaper car models and coupled with the ongoing stiff competition, these are pointing to the trend of continual margin erosion for the automotive players.

"On sales breakdown, we believe the non-national segment will continue to gain traction on the assumption of more completely-knocked down energy efficient

vehicles (EEV) being introduced in conjunction with the government's initiatives in promoting Malaysia as the EEV regional hub," it added.

Its 2014 sales mix assumption of national and non-national segments is at 52:48.

Kenanga Research said in the absence of an immediate re-rating catalyst in the pipeline, coupled with the moderate growth expectations, it is maintaining

its 'neutral' rating on the sector .

Tan Chong Motor Holdings Bhd remains as our only 'buy' stock as we prefer its strong Nissan franchise expansion and long-term regional growth story," it added.

Kenanga Research also prefers Berjaya Auto, for which Kenanga has a 'trading buy' call with a target price of RM1.92 for the retail product segment, with investment merits backed by its superior growth prospects from low a base on the back of strong pipeline of exciting models