Auto industry braces for softer earnings in 1Q
Earnings for automotive companies are expected to be softer in the first quarter of the financial year 2025 (1Q25) compared to the previous quarter.
However, demand is expected to remain supported by the Hari Raya promotion campaigns and the backlog orders, particularly for popular mass-market models, said Bank Islam Malaysia Bhd (BIMB) Securities Research.
The significant sales decline among Japanese original equipment manufacturers (OEMs) – Honda, Mazda and Nissan – by 35% to 52% year-on-year was expected.
This decline reflects two key risks in the 2025 outlook – fuel subsidy cuts and market disruption by Chinese OEMs.
The research house expects total industry volume (TIV) to moderate quarter-on-quarter in 1Q25 due to seasonal factors including fewer working days during Chinese New Year and Hari Raya Aidilfitri.
The research house maintained its “overweight” stance on the automotive sector, as it believes 2025 TIV is likely to sustain the momentum.
It has a “buy” call on Sime Darby Bhd with a target price (TP) of RM2.60 a share while “hold” for MBM Resources Bhd (TP: RM5.50 a share) and Bermaz Auto Bhd (TP: RM1.12 a share).
Affin Hwang Investment Bank Research has a “neutral” rating on the sector, with a 2025 TIV forecast of 720,000. This conservative outlook accounts for sales normalisation from a high base and multiple headwinds in Malaysia’s automotive market.
It recommended stock exposure to defensive national plays and economical options, as the RON95 subsidy rationalisation is expected to shift demand toward cost-effective national brands and energy-efficient vehicles, reducing the appeal of petrol-dependent cars.
It has “hold” calls for both MBM Resources (TP: RM5.44 a share) and Sime Darby (TP: RM2.26 a share), while a “sell” for Bermaz Auto (TP: RM1.05 a share).
MBM Resources remains its sector top pick due to its resilient earnings profile and limited surprise to downside risk compared to its peers.
It benefited from its 22.6% stake in Perodua as the market leader which is well-positioned to benefit from downtrading driven by the RON95 subsidy rationalisation.
The strategic addition of Jaecoo further strengthens its portfolio without cannibalising existing sales.
The research house stated that Sime Darby’s earnings outlook remains mixed over the near term as a recovery in its China motors segment is likely to face delays amid the ongoing price war, despite showroom closures aimed at cost management.
Affin Research added that Bermaz Auto remains its top market sell, as its completely knocked-down lineup faces mounting challenges.
Consumer preference is increasingly shifting toward affordability over brand loyalty, significantly impacting sales performance.
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