Automotive sector
Maintain underweight: The Edge Financial Daily reported last Friday that car buyers may soon find it more difficult to secure loans as banks move to clamp down on auto financing.
While the financing structure is fluid at this juncture and has yet to be finalised, it was reported that luxury car buyers (high-end models like two-door sports cars and brands like Bentley, Ferrari and Maserati) may be required to take out as much as 50% up front payment. Additionally, buyers may be limited to a maximum of two car loans in their names at any one time.
The banks are proposing to stop lending to people who want to take a third car loan. Buyers taking a first car loan will still be able to secure 90% financing, while for a second loan a down payment of 30% to 35% may be required. This move was reportedly spearheaded by the private sector and financial institutions.
If the above tightening of auto loan spread is limited to only high-end luxury models, we don’t expect a change in our projected 600,000 unit sales forecast for 2012 (flat year-on-year).
New Porsche cars sold in 2011 were 126 units (out of 600,000 vehicles sold in 2011). Note that reconditioned car sales are not captured in our sales forecast. However, if the tightening of auto loans is also spread to mass models, the impact is clearly negative on 2012 auto sales forecast. At this juncture, we maintain our projections until further clarity from financial institutions.
In the past one decade, auto sales have grown by 12% annually and this is largely due to: (i) positive economic growth; and (ii) high levels of affordability. Thus, if financial institutions change the tenure of car loans (Malaysia has one of the longest tenures, with options to take a car loan for up to nine years) or impose a higher down payment, the sector will be challenging in 2012.
We maintain our “underweight” call on the sector to reflect flattish sales growth prospects and concerns over margin compression over the next six to nine months (on the back of higher raw material cost and advertising and promotions given the onset of competition, especially in 2H12). The sector trades at 12.1 times CY12 earnings and 0.75 times price over earnings-to-growth ratio — fairly reflective of a mature ex-growth sector with low trading liquidity.
Top pick: MBM Resources Bhd (Buy, current target price [TP] RM3.65 — under review) for good representation in both the mass (Perodua) and high-end market (VW, Volvo, Mitsubishi) as well as good cost discipline.
We also believe MBM is a prime candidate to undertake a privatisation exercise given its attractive valuations (price-earnings ratio of 6.7 times, 0.8 times book value, net cash of RM132 million and return on equity of 11.2%). The completion of the Hirotako takeover will raise FY12 earnings per share by 10% and bump up our TP for MBM from RM3.65 to RM3.80. — Affin IB Research, Jan 27
This article appeared in The Edge Financial Daily, January 30, 2012.
Maintain underweight: The Edge Financial Daily reported last Friday that car buyers may soon find it more difficult to secure loans as banks move to clamp down on auto financing.
While the financing structure is fluid at this juncture and has yet to be finalised, it was reported that luxury car buyers (high-end models like two-door sports cars and brands like Bentley, Ferrari and Maserati) may be required to take out as much as 50% up front payment. Additionally, buyers may be limited to a maximum of two car loans in their names at any one time.
The banks are proposing to stop lending to people who want to take a third car loan. Buyers taking a first car loan will still be able to secure 90% financing, while for a second loan a down payment of 30% to 35% may be required. This move was reportedly spearheaded by the private sector and financial institutions.
If the above tightening of auto loan spread is limited to only high-end luxury models, we don’t expect a change in our projected 600,000 unit sales forecast for 2012 (flat year-on-year).
New Porsche cars sold in 2011 were 126 units (out of 600,000 vehicles sold in 2011). Note that reconditioned car sales are not captured in our sales forecast. However, if the tightening of auto loans is also spread to mass models, the impact is clearly negative on 2012 auto sales forecast. At this juncture, we maintain our projections until further clarity from financial institutions.
In the past one decade, auto sales have grown by 12% annually and this is largely due to: (i) positive economic growth; and (ii) high levels of affordability. Thus, if financial institutions change the tenure of car loans (Malaysia has one of the longest tenures, with options to take a car loan for up to nine years) or impose a higher down payment, the sector will be challenging in 2012.
We maintain our “underweight” call on the sector to reflect flattish sales growth prospects and concerns over margin compression over the next six to nine months (on the back of higher raw material cost and advertising and promotions given the onset of competition, especially in 2H12). The sector trades at 12.1 times CY12 earnings and 0.75 times price over earnings-to-growth ratio — fairly reflective of a mature ex-growth sector with low trading liquidity.
Top pick: MBM Resources Bhd (Buy, current target price [TP] RM3.65 — under review) for good representation in both the mass (Perodua) and high-end market (VW, Volvo, Mitsubishi) as well as good cost discipline.
We also believe MBM is a prime candidate to undertake a privatisation exercise given its attractive valuations (price-earnings ratio of 6.7 times, 0.8 times book value, net cash of RM132 million and return on equity of 11.2%). The completion of the Hirotako takeover will raise FY12 earnings per share by 10% and bump up our TP for MBM from RM3.65 to RM3.80. — Affin IB Research, Jan 27
This article appeared in The Edge Financial Daily, January 30, 2012.
