MALAYSIA'S vehicle sales are expected to gradually normalise after two months of consecutive decline in April and May.
RHB Research expects new car sales to improve in the second half of 2013 as consumers gradually understand the government's strategy on vehicle pricing and expectations for significant reductions in car prices moderate.
"The macro environment continues to be supportive of increased consumption spending," the firm noted yesterday.
RHB Research, however, has maintained a neutral stance on the auto sector as the lack of clarity on regulatory issues remains a drag.
Its top picks in the sector are Tan Chong Motor Holdings Bhd with a "buy" tag and a fair value of RM7.30, and DRB-HICOM Bhd, ("buy", fair value of RM3.30).
Previously, many consumers had chosen to adopt a wait-and-see attitude, given the lack of clarity on precisely how price reductions would be implemented.
Total industry volume for May reached just 49,634 units, slumping 14.9 per cent year-on-year and 5.4 per cent month-on-month, according to data from the Malaysian Automotive Association.
"While underlying consumer demand is strong, the market is being rocked by consumer hesitation due to the lack of clarity in the price reduction implementation," it said.
The government's current automotive pricing strategy revolves around raising the level of competition in the market and eliminating industry inefficiencies.
This is to gradually drive prices lower without any explicit reduction in automotive duties.
"To this end, the weaker yen exchange rates and squeezing the auto parts and component suppliers have helped," RHB Research said.
Further reduction in the cost structure may have to be extracted from higher local content targets, which could yield lower effective excise duty rates.
"Nonetheless, that the heightened market competition will continue to pressure industry margins."