KUALA LUMPUR, Dec 16 — RHB Research has maintained its ‘Overweight’ call on the automotive (auto) and auto parts sector as it offers an attractive risk-to-reward ratio for investors to position themselves for cyclical recovery in 2021.

The research house expects the industry’s 2021 forecast earnings to be driven by the replacement cycle and economic recovery.

"We also do not foresee the total industry volume (TIV) to collapse next year once the tax-free period ends as it should be supported by new model launches and gradual economic recovery,” it said in a note today.

As such, the 2021 TIV forecast of 580,000 unit implies a 16 per cent year-on-year growth, with an expectation of several more launches to come.

"National brands should gain market share in this cycle, with improvements in product quality and expansion of product offerings as key drivers.

"Our top pick is DRB-Hicom Bhd (DRB), and the X50 could be a game changer for Proton in disrupting the B-segment SUV (sport utility vehicle) space which could trigger an earnings re-rating.

"DRB’s third-quarter 2020 (Q3) bottomline turned positive on the improved performances from all three operating divisions. We anticipate a much stronger Q4 2020 performance, reflecting the maiden earnings contributions from the Proton X50 and all-new Honda City,” the research house said.

As for 2020, it maintained the TIV forecast at 500,000 units with the view that car sales will remain at about 50,000 units per month in November and December as consumers remain incentivised to take advantage of lower car prices valid till year-end, which will translate into a strong fourth-quarter 2020 performance. — Bernama