Autos - GST driving car prices downhill
Recommendation: Neutral
The reductions to car prices announced by several automakers today as a result of GST’s implementation did not really come as surprise, as we had expected a minimal reduction due to the different tax methods pre- and post-GST, although the magnitude was slightly bigger than we had anticipated. We view this positively, due to higher affordability of cars in the country. Nonetheless, we do not expect a hike in industry sales volume since 1) carmakers have offered sizeable discounts since 2014 2) increase in price of other goods and services which will affect car sales, and 3) weak consumer sentiment. We keep our Neutral sector call and flat TIV growth of 670,000 units. Berjaya Auto remains our only Add call and our sector top pick.
What Happened
A few automakers announced today that their car prices have been reduced by as much as 3.25% following the implementation of the Goods and Services Tax (GST), which takes effect today. Proton announced that the prices for all its models have dropped by up to RM1,475 or 3.25% from pre-GST prices, while Honda Malaysia’s full GST price list showed that its models will be priced by up to RM2,529 or 2.38% lower from their pre-GST prices. UMW Toyota Motor meanwhile said that there will be price reductions of up to RM4,000 or 2% for Toyota and Lexus models, and Renault cars will be priced up to 1.12% lower. However, a few automakers have maintained their car prices from pre-GST prices, including BMW Malaysia, Peugeot and Citroen.
What We Think
We are not really surprised by the drop in car prices post-GST, although we had expected a smaller reduction. We had anticipated a minimal reduction due to the different calculation methods between the precedent sales tax rate of 10% and the 6% GST rate. We view this positively, as this will lead to more affordable car prices in the country. Nonetheless, we do not expect a spike in car sales volume post-GST even with the price reduction, due to a few factors. In order to push sales volume, most automakers have been undertaking aggressive promotions, offering discounts and rebates on car purchases since last year until now, with amounts that were substantially larger than the reduction amount due to GST. As such, we believe the post-GST price reduction impact will be minimal. Furthermore, we believe the increase in prices of other goods and services post-GST will affect the spending power of consumers to the detriment of flailing consumer sentiment, which will have an indirect impact on car sales. As such, we maintain our 2015 total industry volume forecast at 670,000 units, as we expect consumers to stay cautious and refrain from big ticket item purchases such as a new car.
What You Should Do
We recommend investors continue to Add Berjaya Auto, which remains our top pick for the sector. Mazda has yet to officially announce the pricing of its models post-GST, but it has indicated that it is also going to lower the prices of some of its models by up to 2% per vehicle. Nonetheless, we do not expect the price reductions announced by other brands today to have an adverse impact on its sales. We believe BAuto’s strategy of targeting the niche market of higher-middle income clientele with affordable fun-to-drive cars will serve it well in the current environment, as this group is less likely to be severely affected by the introduction of GST.
Source: CIMB Daybreak - 02 April 2015
Recommendation: Neutral
The reductions to car prices announced by several automakers today as a result of GST’s implementation did not really come as surprise, as we had expected a minimal reduction due to the different tax methods pre- and post-GST, although the magnitude was slightly bigger than we had anticipated. We view this positively, due to higher affordability of cars in the country. Nonetheless, we do not expect a hike in industry sales volume since 1) carmakers have offered sizeable discounts since 2014 2) increase in price of other goods and services which will affect car sales, and 3) weak consumer sentiment. We keep our Neutral sector call and flat TIV growth of 670,000 units. Berjaya Auto remains our only Add call and our sector top pick.
What Happened
A few automakers announced today that their car prices have been reduced by as much as 3.25% following the implementation of the Goods and Services Tax (GST), which takes effect today. Proton announced that the prices for all its models have dropped by up to RM1,475 or 3.25% from pre-GST prices, while Honda Malaysia’s full GST price list showed that its models will be priced by up to RM2,529 or 2.38% lower from their pre-GST prices. UMW Toyota Motor meanwhile said that there will be price reductions of up to RM4,000 or 2% for Toyota and Lexus models, and Renault cars will be priced up to 1.12% lower. However, a few automakers have maintained their car prices from pre-GST prices, including BMW Malaysia, Peugeot and Citroen.
What We Think
We are not really surprised by the drop in car prices post-GST, although we had expected a smaller reduction. We had anticipated a minimal reduction due to the different calculation methods between the precedent sales tax rate of 10% and the 6% GST rate. We view this positively, as this will lead to more affordable car prices in the country. Nonetheless, we do not expect a spike in car sales volume post-GST even with the price reduction, due to a few factors. In order to push sales volume, most automakers have been undertaking aggressive promotions, offering discounts and rebates on car purchases since last year until now, with amounts that were substantially larger than the reduction amount due to GST. As such, we believe the post-GST price reduction impact will be minimal. Furthermore, we believe the increase in prices of other goods and services post-GST will affect the spending power of consumers to the detriment of flailing consumer sentiment, which will have an indirect impact on car sales. As such, we maintain our 2015 total industry volume forecast at 670,000 units, as we expect consumers to stay cautious and refrain from big ticket item purchases such as a new car.
What You Should Do
We recommend investors continue to Add Berjaya Auto, which remains our top pick for the sector. Mazda has yet to officially announce the pricing of its models post-GST, but it has indicated that it is also going to lower the prices of some of its models by up to 2% per vehicle. Nonetheless, we do not expect the price reductions announced by other brands today to have an adverse impact on its sales. We believe BAuto’s strategy of targeting the niche market of higher-middle income clientele with affordable fun-to-drive cars will serve it well in the current environment, as this group is less likely to be severely affected by the introduction of GST.
Source: CIMB Daybreak - 02 April 2015
