Auto stocks to benefit from strong Ringgit

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Automotive stocks will remain bullish if the ringgit recovery against US dollar maintained   its momentum, The Star reported.

These stocks could add on to picks up if buyers feel better about the economy and thus increase spending on first-class things.

Recently, Grant Thornton’s quarterly business survey reported that business leaders in Malaysia saw their confidence rising by 6 per cent in the fourth-quarter of 2017 which is a positive recovery from  36 per cent a year ago.

The survey revealed that 58 per cent of business owners are anticipating an increase in profits which is up to 46 percentage points from the third-quarter of last year.

Also, 30 per cent of business owners are expecting an increase in selling prices, which is a surge of 14 percentage points from the same period of third-quarter in 2017.

In addition, experts believed that if businesses’ spending picks up due to refining sentiment, it would just involve time before consumer sentiment catches up. However, they also stressed that there could be a minor dampener from the recent interest rate hike.

In any case, these stocks are as of now climbing, taking their prompt from the ringgit that has all the earmarks of recapturing its mojo in the short term once again.

Auto stocks that see their execution closely connected to the ringgit’s drive are Tan Chong Engine Property Bhd, Bermaz Auto Bhd, and UMW Possessions Bhd.

The report stated that all such stocks have seen wide picks up in their share price of late, with UMW top the pack taking after a 31.15 per cent year-to-date (YTD) pick up in its share price to RM6.82 at the most recent close.

UMW with a 13.2 per cent country market share in December 2017 is the importer and distributor of Toyota cars, which is the second biggest non-national car brand in Malaysia.

A dealer said that UMW was profiting from two components. The first one is the improved sentiment due to the progressed ringgit levels, and the second is the positive recognition on government-linked companies in the run-up to the 14th general election (GE14).

This is most probably the reason why UMW gains were massive compared to other companies,” the dealer said.

On the other hand, the second company after UMW in terms of YTD share price gains was Tan Chong with a 21.28 per cent gain to RM1.71 at the latest close, which is an importer and distributor of Nissan cars in Malaysia.

According to statistics compiled by the Malaysian Automotive Association (MAA), Tan Chong had a 4.1 per cent market share in the December 2017 of Malaysian total industry volume (TIV).

Meanwhile, Bermaz Auto, which is a distributor of Mazda cars saw a minimal 1.82 per cent YTD gains to RM2.24 at the latest close. However, the stock has already been on an overall upward trend since September 2017.

To add, whether the uptrend in these stocks can be sustained is also determined on how much TIV will grow.

Analysts said that with the continued proliferation of ride-sharing through Uber and Grab, TIV could still be kept in check in the short to medium term. “However, do note that from news reports, these ride-sharing companies such as Uber are still loss-making.

“It also means that the rides at such cheap prices may not be self-sustaining, moving forward. Discount coupons may not be so readily available eventually as well,” the analyst said.

Against this backdrop, MAA is still expecting a growth of about 2.3 per cent for TIV to 590,000 units for 2018 from 576,635 units last year, in line with the nation’s projected higher economic growth of 5 to 5.5 per cent.

MIDF Research in a report last week stated, the rising ringgit is a ‘big positive’ for automotive companies and underpins its bullish call on the sector.

MIDF has “buy” calls on all three stocks: UMW, Tan Chong and Bermaz Auto with target prices of RM6.00, RM2.05 and RM2.50, respectively. It noted that its “buy” call on UMW is now “under review”.

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