In a condition of economical crisis, many car distributors is expected to be under pressure and will offer more great deals on buying a new cars. This is to attract more buyers and clear the old stock of the cars.
Read more about MORE FREE GIFT FROM CAR DISTRIBUTORS by business time below
Affin Investment Bank, which forecast a 20 per cent year-on-year contraction in vehicle sales in 2009, says margins will come under pressure as stocks will need to be cleared
MALAYSIAN car distributors are expected to throw in more freebies in 2009 to boost sales amid slowing demand, Affin Investment Bank said in a research note yesterday.
“Margins will come under pressure as stocks will need to be cleared and targets will need to be achieved,” it said in a report on the outlook for the car and carparts sector.
Affin Investment has forecast a 20 per cent year-on-year contraction in vehicle sales to 432,000 units in 2009, a level last seen in 2002.
“We expect deepening macro concerns, lack of new ‘mass’ model launches and potentially stringent bank loan approvals to curtail new purchases.
“Conversely, lower petrol prices and financing rates and hence expectations of lower cost of (car) ownership may partly mitigate the contraction,” it added.
Vehicle sales fell 59 per cent during the Asian financial crisis of 1998, seven per cent during the SARS period in 2003, and nine per cent following changes in the National Automotive Policy (NAP) tax structure in 2006.
Affin Investment said investors should watch out for a NAP “review” slated for March 2009, which may focus more on enhancing non-tariff protectionism rather than incorporate changes in tax structure.
“The non-tariff protections may include higher localisation of car parts and this is a longer term boon for domestic car part producers. We also believe the government may continue to provide research and development grants to national car producers,” it said.
Given the lower sales forecast and weaker ringgit against the US dollar and yen, Affin Investment sees car players’ profitability margins coming under pressure, at least in the first half of this year.
“Broadly, we expect to see 21 per cent year-on-year contraction in sector earnings,” it said.
Affin Investment is keeping its “neutral” stance on the sector as these negative headwinds appear to have been “priced in” for automotive sector stocks.
Its top pick remains UMW due to quality management, sound business model that leverages on superior venture partners, and active capital management to support downside risk.