PETALING JAYA: Analysts have mostly adopted a cautious outlook on the automotive sector, after the latest new vehicle sales or total industry volume (TIV) posted a 15% drop month-on-month (m-o-m) and fell 12% year-on-year (y-o-y) to 61,300 units in May, following two consecutive months of growth.

TA Research, in a report, kept its 2026 TIV forecast at 750,000 units, down 8.6% y-o-y, as industry volumes are expected to normalise following the post-pandemic recovery and backlog fulfilment cycle.

The recent earnings and monthly sales data also suggest that softer consumer sentiment, moderating order backlogs and intensifying competition from Chinese marques across both the electric vehicle (EV) and internal combustion engine (ICE) segments are weighing on sales momentum and margins.

While the new completely built-up EV requirements provide some support to national marques, TA Research does not expect a meaningful uplift to the industry TIV.

While the earlier share price correction had improved the sector’s risk-reward profile, subsequent rebound in Sime Darby Bhd

’s share price has largely eroded valuation appeal.

Given persistent industry headwinds and limited upside across its coverage universe, TA Research has downgraded the sector to “underweight” from a “neutral” previously. It maintained its “sell” recommendations on Bermaz Auto Bhd

(BAuto) with a target price (TP) of 89 sen and MBM Resources Bhd

at RM4.46 due to limited re-rating catalysts and weaker earnings prospects.

It downgraded Sime Darby to a “sell” from “hold” earlier with a TP of RM2.16 as the recent rebound in its share price has narrowed its upside potential.

Meanwhile, Kenanga Research’s sector top picks are BAuto, with a TP of RM1.22 driven by strong demand for Japan domestic market models, and Hong Leong Industries Bhd

at RM21 riding on higher- margin premium motorcycle segment.