MIDF Research said in a note on Thursday that it believes the total industry volume (TIV) momentum is close to peaking after record-breaking TIV in 2022 and potentially another new record this year.
The research house believes there is some room for 2023 TIV to outperform its projections, while near-term revenue visibility is solid given the existing order backlog.
However, it noted that backlog order growth has started to flatten out with initial signs of receding compared to March-June levels, and this follows a pickup in production to address the long waiting list previously.
"We do not expect a drastic fall (of TIV) at this juncture as demand could remain supported by improvement in unemployment rate and income conditions, while a moderating inflation trend also lends support," it said.
Additionally, while a strong U.S. dollar is still a margin risk, it noted that the non-national players have been raising selling prices since early this year - given large order backlogs.
It also reckoned the second quarter earnings season only partially reflected the impact of these price increases.
Affin Hwang Investment Bank, on the other hand, maintained its underweight rating on Malaysia's automotive sector with an unchanged 2023 TIV forecast of 650,000 units (-10 percent year on year).
The research house expects discounting activities due to competitive pricing pressure to adversely impact the sector's margins.
It also believed that weak profit margins and lower average selling prices are not helping to strengthen the sector's earnings momentum despite the strong orders.
Additionally, with the arrival of both electric vehicle (EV) and non-EV entrants, it said a more competitive landscape is likely to emerge for existing players as accumulated orders could be cancelled due to the allure of affordable price offerings and attractive after-sales packages by these new entrants.
The research house's TIV forecast remains at 650,000 units, down 9.8 percent year on year, as it sees the risk of slower demand given the weaker economic climate.
The Malaysian Automotive Association announced last Friday that Malaysia's car sales posted another strong growth, amounting to 71,745 units sold in August.
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