Automotive sector earnings hit by forex fluctuations
DOUBLE WHAMMY: Softer car sales is also expected to take a toll on industry
AANALYST NOTES/MSWG UTOMOTIVE sector earnings were blighted by foreign exchange (forex) fluctuations last year and the situation has got worse, said Maybank Investment Bank Bhd (Maybank IB).
With Brexit now a reality, volatility in the global forex market will likely persist, with liquidity flowing into safe haven assets (gold) and currencies (US dollar, yen, Swiss franc), it said in a research note.
It said strength in US dollar and yen was negative for automotive players as their imported cars/components were denominated in these currencies.
“Coupled with softer car sales this year, this double whammy will sustain negative sentiment and earnings growth this year,” said Maybank IB.
Earnings forecasts are unchanged pending further developments (i.e. intervention by global policymakers and central banks) in the coming days.
The firm said stock prices of automotive players within its coverage retraced by one to eight per cent last Friday, reacting to a spike in US dollar and yen against the ringgit. “We expect further share price volatility amid uncertain forex outlook.”
The firm has reiterated its “negative” stance on the sector with key “sells” being UMW Holdings Bhd and Tan Chong Motor Holdings Bhd.
“Should yen/ringgit sustain at 4.00 versus our built-in assumption of 3.70, we see most downside risk in Berjaya Auto Bhd’s earnings,” it said.
“Nonetheless, this will partially be cushioned by its positive ringgit/peso exposure from its 60 per centowned Maybank IB reiterates Bloomberg pic
Philippines operation,” it added.
Currently, Maybank IB prefers Pecca Group Bhd for its exposure in
on the automotive sector . the automotive sector, riding on increasing leather upholstery adoption and demand for the upcoming Perodua sedan.