Are these car companies poised for an uptrend in share prices? Are they a good buy now?
The post-pandemic period has been a good one for auto companies in Malaysia and Singapore.
In Malaysia, the expiration of a tax exemption by the end of June 2022 drove car sales up significantly for most Malaysian car sellers.
Motor vehicle sales rose by a whopping 613.8% to RM14.4 billion in July 2022.
Meanwhile, the continued reopening of the Singaporean economy and Malaysian borders is expected to increase the number of Singaporeans traveling within and outside of Singapore.
Hence, these 5 auto stocks in Malaysia and Singapore might be worth a closer look…
#1: UMW Holdings
UMW Holdings (UMW) is involved in the industries of automobiles, equipment, manufacturing & engineering, and aerospace.
Most famously, in Malaysia, it is the producer and seller of Toyota, Perodua, and Lexus car brands.
Furthermore, UMW also distributes and services world-renowned industrial and marine equipment brands such as Rosenbauer, Komatsu, Kohler, Baker Hughes, Mitsubishi, and many others.
In the second quarter of 2022 (2Q 2022), revenue grew at a sharp rate of 52.6% from a year ago to RM3.7 billion as the expiration of tax exemption for cars drove UMW’s sales in the final months of the quarter.
Profits have also rebounded from a loss of RM9.6 million in 3Q 2022, to an average of RM242.2 million in the three subsequent quarters. As a result, UMW’s revenue is on pace to recover back to its pre-pandemic level of RM11.7 billion in 2019.
Most analysts have an OVERWEIGHT call on UMW with a average target price of RM4.06, implying an upside of 26.8% from the current share price of RM3.20.
UMW could be a worthy investment opportunity for the following reason:
- Dominant position of Perodua in the local market. Perodua ranks first in passenger car sales in 2020.
- Diversified business segments, with exposure in other parts of the supply chain of the automotive industry.
- Strong cash position in relation to its liabilities.
#2: Bermaz Auto
Bermaz Auto (BA) is a distributor of Mazda, Peugeot and Kia branded automobiles in Malaysia and Philippines, and also provides after-sales services and spare parts to these brands.
BA’s business is mainly concentrated in Malaysia, encompassing about 92% of total revenue in 2022.
In terms of financial performance, Bermaz Auto’s revenue growth might be the most impressive here, growing at an annual growth of 123.5% in the 2Q 2022 to RM716.9 million.
Profits have also quadrupled to RM56.6 million in 2Q 2022 from RM10.3 million in 2Q 2021. Returns on equity for BA has also been on an uptrend from 23.7% in 2021 to 31.1% in the 1H 2022.
Analysts mostly have a BUY call on BA, with an average target price of RM2.19, representing an upside of 15.3% from the current share price of RM1.90.
BA could be a good investment opportunity for you according to the following factors:
- Strong returns on equity and asset.
- Strong revenue and profit growth momentum in recent quarters.
- Reputable Mazda brand. Awarded best car brand by U.S. News and Reports in 2021.
#3: Jardine Cycle & Carriage
Jardine Cycle & Carriage (JCC) is a diversified conglomerate with exposures in the automotive, financial services, heavy equipment, agribusiness, infrastructure & logistics, information technology, and property segments.
Astra, the flagship brand of JCC, comprises of 92.1% of JCC’s revenue, and operates mainly in the automotive segment throughout Southeast Asia.
It houses the production, assembly and distribution of brands such as Toyota, Daihatsu, Isuzu, Peugeot, UD trucks and Honda motorcycles.
In 2021, JCC has staged a strong recovery, with revenue growing by 30.4% to SGD23.8 billion from SGD18.2 billion in 2020.
That momentum has continued with revenue continuing to grow by 32.4% to SGD14.6 billion in 1H 2022 from SGD11.0 billion in 1H 2021.
Over the same period, profits have also rebounded by more than double from SGD0.9 billion in 1H 2021 to SGD2.1 billion in 1H 2022.
Profit margins are now at the highest of 13.9%, compared to the historical average of 9.4% (2015 to 2021).
Currently, JCC has a BUY call from most analysts, with an average target price of SGD43.10.
This translates into an upside of about 20.5% from the current share price of SGD35.77.
The following reasons could be a good justification for having JCC in your portfolio:
- Biggest exposure to countries in Southeast Asia with presence in Indonesia, Singapore, Malaysia, Vietnam, Myanmar and Thailand.
- Diversified business streams across different industries.
- Strong profit margins.
#4: Tan Chong Motors
Tan Chong Motors (TCM) is involved in the assembly and marketing of motor vehicles, and the manufacturing of auto parts, heavy machineries, industrial equipment and consumer products.
It is a distributor for car brands such as Nissan and Renault, and also heavy vehicles brand such as UD trucks and King Long coaches and buses.
TCM’s businesses are mainly concentrated in Malaysia, encompassing about 84% of total revenue, with exposures in the countries of Vietnam, Thailand, Cambodia, Laos, and Myanmar.
TCM’s financial performance has been steadily recovering in the first 2 quarters of 2022. Revenue grew by 28.6% to RM1.6 billion in 1H 2022 from RM1.2 billion in 1H 2021.
Meanwhile, as TCM is a very asset-heavy company, TCM still made a loss of RM17.0 million in the 1H 2022.
With the recovery in the economies of Southeast Asia, revenue is projected to recover from RM2.5 billion in 2021 to RM3.3 billion in 2023.
TCM could be a good investment for your portfolio if you are positive on the following factors:
- Exclusive distributor of Nissan in Malaysia.
- Diversified business exposure in multiple industries.
#5: Trans China Automotive
Trans China Automotive (TCA) focuses mainly on the dealership and distribution of premium and super premium car brands such as McLaren, BMW and Genesis in China.
It has presence in the cities of Changsha, Chongqing, Foshan, Guangzhou, Shenzhen and Wuhan. TCA is headquarted in Shenzhen and Hong Kong and listed in Singapore on 11 November 2021.
TCA’s revenue actually grew during the pandemic and harsh lockdowns in China, by 11.8% and 7.1% in 2020 and 2021 respectively.
More impressively, profits actually grew by more than 6 times from CNY20 million in 2019 to CNY120 million in 2021.
As TCA is relatively new to the Singaporean stock market, only one analyst has a BUY call on TCA at a target share price of SGD0.39.
This represents an upside of almost 100% to the current share price of SGD0.20.
TCA nay be a good investment opportunity if investors are bullish on the following outlook for it:
- Continued growth of Chinese appetite and demand for luxury brands. China could be the biggest luxury brand market in the world by 2025.
- High potential for expansion into other Chinese cities.
Conclusion
Therefore, with the continued recovery in Malaysia and Singapore, auto companies sales are expected to recover back to normal.
Hence, these auto companies might be worth investment opportunities that could drive your portfolio up.
