he outlook for the local automotive industry looks solid, following the move by the Government to gradually remove import duties on vehicles from Japan and Australia.
CIMB Investment Bank Bhd analyst Lucius Chong said in a report that it would be highly unlikely the move would have a big impact on the industry, since the process of cutting import duties on completely-built-up (CBU) vehicles from Japan has been ongoing for some time.
“Our scenario analysis, based on the remaining cuts till 2016, shows that CBU prices would go down between 2% and 5% per annum.
“The pricing differential between CBUs and completely-knocked-downs is due to excise duties on non-local content, which range between 75% and 105%, and the Government has given no indication that it will dismantle this,” he said.
He maintains the house's “overweight” call on the industry, with the top pick being UMW Holdings Bhd, whose premium valuation of 11 times 2013 price-to-earnings ratio was justified by strong earnings momentum.
Affin Investment Bank Bhd analyst Chong Lee Len said in another report that Japanese auto players would now have more flexibility in bringing in a wider range of model line-ups. “There could also be some price reduction for the likes of Lexus to stack competitively against the likes of BMW and Mercedes to gain market share,” she said.
However, Chong does not believe the price reduction would be substantial, as marques such as Lexus would still like to maintain market stature.
“At best, we believe that the price reduction by 2014 would be approximately 5%.
“That said, doing away with import duties may potentially give consumers a wide selection of choices and encourage a shorter replacement cycle, thus providing growth visibility for the sector.
She said key beneficiaries are Japanese automakers, namely, Toyota, Nissan and Honda.
“Collectively, the Japanese marques commanded a 28% market share in 2012. The European makers were unfazed, given visible brand loyalty.
“While it may appear to be negative on the surface for European marques - especially for the higher-end makers (ie, Mercedes-Benz, BMW, Volvo, Volkswagen and Audi), we believe that brand loyalty and the stature commanded by European car makers may still provide some buffer to the rather inelastic demand for European-based cars.
“While Perodua cars are unaffected, Proton Persona and Preve may be adversely impacted,” Chong added.
Chong, who has a “neutral” call on the sector, said the liberalisation of the industry would always be seen in a positive light, and believes healthy competition would be good to promote its long-term sustainability and earnings.