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Economy

Malaysia's new vehicle sales likely to meet 1.7% annual volume growth aim

KUALA LUMPUR (Nikkei Markets) - Malaysia's new vehicle sales will likely pick up pace in the months ahead and end the year with a 1.7% volume growth as consumer sentiment improves amid faster economic expansion.

Total industry volume in the Southeast Asia's third-largest economy will probably touch 590,000 units this year, unchanged from January's forecast, according to the Malaysian Automotive Association. The industry sold 580,124 units in Malaysia last year, said the trade group, also known as MAA.

"Consumer confidence is expected to be better following improvement in the economy," MAA, which represents over a dozen car manufacturers, importers and retailers, said in a statement. "The rise in consumers' confidence is expected to boost vehicle sales."

Sales grew 3.3% from a year earlier to 284,461 units in the first six months, while production fell 2.9% to 255,318 units. In June, volume fell 12% to 50,275 units when compared to the same month last year.

Vehicle sales in Malaysia have been under pressure since last year as consumers delayed or scrapped purchases to weather a rising cost of living amid signs of slowing economy. Tighter bank credit also weighed on vehicle purchases.

Analysts said planned launches of mass-market models, coupled with typical year-end marketing campaigns, will help drive sales in the second half of the year. However, earnings and margins in the automotive sector could stay lacklustre due to currency risks, they noted.

"We don't expect the second-half of this year to be stronger than last year's," said CIMB Investment Bank's analyst Mohd Shanaz Noor Azam. Production trailed sales in the first six months, suggesting that retailers were trying to clear inventory, he said.

Currency remains the industry's major concern in the immediate term, said Shanaz, as any reversal in the ringgit's gains would raise cost of imported vehicles and components.

The ringgit has climbed 4.9% against the U.S. dollar so far this year, although the gains come after some 20% decline since 2015.

Perusahaan Otomobil Kedua, a unit of UMW Holdings and the country's largest carmaker by volume, is set to unveil a new compact car and refurbished sedan in the second half. Honda, largely distributed and assembled by DRB-Hicom in Malaysia, also plans to launch hybrid and sports utility vehicle models.

"Going into second half, the catalyst would be continued new model introductions by OEMs (original equipment manufacturers)," said Hong Leong Investment Bank's analyst Daniel Wong. He forecasts sales of 600,000 units this year, mostly driven by OEMs.

Shares of UMW Holdings rose 1.2% to 5.82 ringgit on Monday while DRB-Hicom ended unchanged at 1.68 ringgit. The benchmark FTSE Bursa Malaysia KLCI closed 0.2% higher.

--Jason Ng and Gho Chee Yuan

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