Workers assembling car parts at a plant of VEAM in Thanh Hoa province (Photo: VNA)

While the third-quarter revenues of the car industry may have suffered as customers put off buying decisions, in anticipation of possible incentives, pent-up demand is poised to fuel revenue growth in the last quarter, according to SSI Research.

In May, the Ministry of Finance (MoF) introduced measures to support the domestic car industry, extending special tax deadlines and cutting registration fees by 50% for locally-made cars.

Despite prior approval, on August 15, the Government Office issued Notice 384/TB-VPCP on registration fee reductions. According to the notice, the government’s permanent members agreed in favour of a 50% reduction in registration fees for locally manufactured and assembled vehicles over a three-month span.

SSI Research expected that consumers may buy cars post the seventh lunar month due to dealers offering full registration fee waivers, bypassing the need to wait for the policy change.

Data from the Vietnam Automobile Manufacturers Association (VAMA) showed a 17% increase in car sales in July compared to the same period last year, and a 9% rise from the previous quarter, driven by substantial discounts offered by car dealers.

Despite this, SSI Research believes that the third-quarter revenue of the automotive industry in 2024 will still be affected, as consumers postpone car purchases to await incentives. They were also hesitant to make high-value acquisitions during the unfavourable month (the seventh lunar month).

However, in the fourth quarter of 2024, accumulated demand is expected to be the catalyst for revenue growth.

As a result, car sales for companies like Toyota, Honda and Ford Vietnam are expected to surpass projections in the latter half of 2024.

As these companies affiliate with the Vietnam Engine and Agricultural Machinery Corporation (VEAM), VEAM stands to benefit significantly from its stake in these entities. Currently, VEAM holds a 20% share in Toyota Vietnam, 30% in Honda Vietnam and 25% in Ford Vietnam.

In the second quarter, VEAM disclosed that its consolidated revenue and profit after tax reached over 1 trillion VND (41 million USD) and 1.8 trillion VND, respectively. The figures were up 5% year-on-year and 1%, respectively.

The bulk of the company's profits derived from interest on savings deposits and earnings from joint ventures with Honda Vietnam, Toyota Vietnam and Ford Vietnam.

According to SSI Research, although revenue figures are in line with expectations, profits after tax have exceeded forecasts by more than 10%, driven by robust export activities from Honda Vietnam.

Profit from affiliates amounts to around 1.63 trillion VND, up 3.6% year-on-year and 31% quarter-on-quarter, reflecting a rebound in car sales.

Given the uptick in both vehicle sales and profits from affiliated companies surpassing expectations in the second quarter of 2024, the analytical team of SSI Research forecasts that VEAM's domestic car and motorcycle sales in 2024 will rise by 9% and 2%, respectively, from last year.

Given additional supportive factors like recovering consumer demand and appealing estimated dividend rates of 11% and 10% for VEAM in 2024 and 2025, SSI Research maintains its outlook for VEAM's total revenue and consolidated profit after tax at 3.8 trillion VND and 6.54 trillion VND, up 0.5% on-year and 4.4%, respectively.

Looking ahead to 2025, SSI Research expects that VEAM's gross revenue will remain above 3.8 trillion VND, while the combined profit after tax could potentially reach 6.7 trillion VND, 1% and 2% increases, respectively, compared to 2024.

These estimates hinge on the expectation of higher deposit interest rates and a continued revival in car sales.

In the long-term, SSI Research envisions that the earnings from the motorcycle and car joint venture sector will witness compound annual growth rates (CAGRs) of 1.6% and 4.8% in 2024 - 2028.

Consequently, dividends for VEAM are predicted to dip to their lowest point in 2025 before progressively rising until 2028./.