• Automotive stocks under our coverage exceeded our forecasted results during the quarter under review.

• We maintain a cautious stance on the sector's near-term prospects, foreseeing a normalization in Total Industry Volume (TIV) numbers in 2024. We also expect a decline in consumer sentiment towards purchasing big-ticket items, influenced by recent implementation of the SST hike from 6% to 8%.

• Maintain a NEUTRAL call on Automotive sector with a BUY call on Bauto (TP: RM2.80) and HOLD call MBMR (TP: RM4.28).

High TIV Boost Earnings Performance

Earnings for automotive stocks under our coverage including MBM Resources Berhad (MBMR) and Bermaz Auto Berhad (BAuto) surpassed expectations in 4QCY23, driven by a YoY increase in TIV in 2023. MBMR achieved strong sales, notably led by Perodua, totaling 330k units for fiscal year 2023, a significant 17.1% increase from the previous year. After-sales revenue also rose notably, attributed to heightened production demand from automakers. Meanwhile, BAuto's core net profit for the 4QCY23 grew by 37.2% YoY, also driven by strong demand and new model launches. Similar growth trends were observed in Sime Darby Berhad, where automotive segment revenue increased. Sime Darby Bhd's revenue saw a 21.3% YoY increase in 4QCY23 driven by strong performance in Malaysia, Australia, and Singapore. However, this growth was partly offset by reduced profits from operations in China. As part of Sime Darby Bhd, Toyota increased its sales volume from 100k units in 2022 to 106k units in 2023.

Consumer Sentiment to Negatively Impact on TIV Projection

We maintain a cautious outlook for the sector in near term, considering various factors that may influence market dynamics. We are keeping our TIV forecast for 2024 at 650k, reflecting a significant 19% YoY decline from 799k in 2023. This projection is primarily influenced by several factors, including a decrease in consumer confidence resulting from the recent implementation of the SST (Sales and Service Tax) hike from 6% to 8%. While the SST hike will not directly impact vehicle prices, it will affect after-sale services, particularly in terms of labour charges rather than part items. Additionally, for electric vehicle owners, the SST hike is likely to raise the cost of home charging, as energy consumption is anticipated to exceed the 600kWh threshold. Other factors contributing to our forecast include the impending introduction of a luxury tax ranging from 5% to 10%, and the anticipated subsidy rationalisation of petrol prices expected in the second half of 2024.

Neutral on the Sector

We maintain a NEUTRAL recommendation on Automotive sector due to the expectation normalization TIV in 2024. Maintain a BUY call on BAuto (TP:RM2.80) supported by stable order backlog. Additionally, we have a HOLD call for MBMR (TP: RM4.28) due to a healthy dividend.

Source: BIMB Securities Research - 5 Mar 2024