KUALA LUMPUR: Malaysia's automotive market is expected to rebound in the second half (2H) of 2020 from the temporary Sales and Services Tax (SST) exemption which allows consumers to take advantage of lower new car prices.

Hong Leong Investment Bank Bhd (HLIB) said attractive new model launches by original equipment manufacturers (OEMs) would continue to grab higher market share this year.

The firm said the likes of Proton, Perodua, Honda and Mitsubishi were expected to launch new models including locally-assembled Proton X70 and X50, Perodua Bezza and D55L sport utility vehicle, the new Honda BRV, City, CR-V, Accord and Civic, Nissan Almera and Mitsubishi Xpander.

"Therefore, we forecast total industry volume (TIV) for 2020 at 492,000 units. OEMs with high inventory level and unaffected supply disruption will likely to outperform," said HLIB analyst Daniel Wong.

The firm maintained an "overweight" on the local automotive recovery play as it expected the SST exemption to aid TIV revival.

"We recommend 'buy' call for DRB-HICOM Bhd with a target price of RM2.52, MBM Resources Bhd (RM5.00), Pecca Group Bhd (RM1.28) and Sime Darby Bhd (RM2.55)," he said.

Wong said the TIV had between January and May this year plunged 32.9 per cent year-on-year (YoY) to 129,500 units, affected by the Covid-19 on the implementation of Movement Control Order (MCO), slowdown of the economy and deteriorated consumer sentiment.

"National OEMs continued to lead the market with Perodua capturing 40.9 per cent market share and Proton 21.2 per cent. Within the foreign OEMs, both Toyota and Honda lead with 10.7 per cent market share respectively, followed by Nissan 2.6 per cent and Mazda 2.5 per cent."

He said the weak ringgit would increase the effective input costs for imported complete built unit (CBU) cars, complete knocked-down packs and raw materials, and subsequently affect OEMs' margins.

"OEMs that have major exposure towards US dollar include Toyota (UMW Holdings Bhd) and Nissan (Tan Chong Motor Holdings Bhd), while Japanese yen include Honda (DRB-HICOM) and Mazda (Bermaz Auto Bhd)," he said.

Wong said OEMs with new launches were likely in good position to price in the higher cost to protect their margins.