The slight decrease of 1% in new vehicle sales in August 2024 is unlikely to stop the upward momentum of the auto sector.

New car sales, also referred to as Total Industry Volume (TIV), fell slightly month-on-month to 71,162 units in August despite aggressive promotion efforts as buyers digest government measures: e-invoicing, petrol subsidy rationalisation and civil servant pay hike.

Nevertheless, with the 8-month volume making up 72% of the full-year projection of 740,000 units, analysts considered the number as meeting their expectation.

In general, the industry's earnings visibility is still good, backed by a booking backlog of 160,000 units.

Kenanga's 2024 TIV forecast is a tad more conservative than the 765,000 units projected by Malaysia Automotive Association (MAA), pointing to e-invoicing and petrol subsidy rationalisation that could weigh down vehicle sales in the second half of 2024.

While the affordable segment remains relatively unaffected, fuel subsidy rationalisation will likely hurt the demand for mid-market models, giving rise to a two-speed market locally.

Additionally, the recently announced pay raise for civil servants, 15% for the management and professional category and 7% for the upper management, could boost consumer spending power and push up car sales.

Analysts' top pick in the sector is MBM Resources Bhd (MBMR) with a target price of RM6.30. As at 4:19pm, MBMR's stock traded at RM5.78. (Google-hosted Bursa updates)