Automotive sector
Maintain neutral: Although we do not expect the rumoured tightening of auto loan guidelines to put a significant dent in vehicle sales, it reaffirms our belief that the lending environment will tighten, which poses downside risks to vehicle sales.
The impact of these proposals on the auto companies under our coverage is unlikely to be significant. We stay “neutral” on the sector. We like DRB-Hicom Bhd for exposure to the auto sector. UMW Holdings Bhd is attractive from a dividend yield standpoint.
According to The Edge Financial Daily, buyers of luxury cars such as Bentley, Ferrari and Maserati may be required to fork out as much in 50% upfront payment. In addition, car buyers may be limited to a maximum of two car loans in their name at any one time. Another proposal is the standardisation of lending rates against specific models. “The banks will stop lending to people who want to take third car loans in their name as it is found that borrowers with more than two car loans pose the highest risk of non-performing loans [NPL]. Buyers taking first car loans will still be able to secure 90% financing but for a second loan a down payment of 30% to 35% is required, depending on the creditworthiness of the borrower,” said the source.
The proposal to tighten car loans is not entirely a surprise given the current economic environment and the need for banks to rein in NPL. These proposals are negative, but based on our channel checks, their impact on total vehicle sales is unlikely to be significant for the following reasons: (i) luxury cars make up less than 3% of total vehicle sales; (ii) buyers of luxury cars generally do not require much financing; and (iii) it is uncommon for individuals to own more than two cars since cars are depreciating assets. As such, we are maintaining our projection of 5% growth in total vehicle sales to 628,022 units for 2012.
Stay on the sidelines. We see few reasons to be excited about the sector now. — CIMB Research, Jan 30
This article appeared in The Edge Financial Daily, January 31, 2012.
Maintain neutral: Although we do not expect the rumoured tightening of auto loan guidelines to put a significant dent in vehicle sales, it reaffirms our belief that the lending environment will tighten, which poses downside risks to vehicle sales.
The impact of these proposals on the auto companies under our coverage is unlikely to be significant. We stay “neutral” on the sector. We like DRB-Hicom Bhd for exposure to the auto sector. UMW Holdings Bhd is attractive from a dividend yield standpoint.
According to The Edge Financial Daily, buyers of luxury cars such as Bentley, Ferrari and Maserati may be required to fork out as much in 50% upfront payment. In addition, car buyers may be limited to a maximum of two car loans in their name at any one time. Another proposal is the standardisation of lending rates against specific models. “The banks will stop lending to people who want to take third car loans in their name as it is found that borrowers with more than two car loans pose the highest risk of non-performing loans [NPL]. Buyers taking first car loans will still be able to secure 90% financing but for a second loan a down payment of 30% to 35% is required, depending on the creditworthiness of the borrower,” said the source.
The proposal to tighten car loans is not entirely a surprise given the current economic environment and the need for banks to rein in NPL. These proposals are negative, but based on our channel checks, their impact on total vehicle sales is unlikely to be significant for the following reasons: (i) luxury cars make up less than 3% of total vehicle sales; (ii) buyers of luxury cars generally do not require much financing; and (iii) it is uncommon for individuals to own more than two cars since cars are depreciating assets. As such, we are maintaining our projection of 5% growth in total vehicle sales to 628,022 units for 2012.
Stay on the sidelines. We see few reasons to be excited about the sector now. — CIMB Research, Jan 30
This article appeared in The Edge Financial Daily, January 31, 2012.
