• Keep OVERWEIGHT; Top Picks: Bermaz Auto (BAUTO) and UMW. According to the Malaysian Automotive Association (MAA), April TIV was 46,583 units (-41% MoM, -19% YoY), with total production volume (TPV) at 41,160 units (-46% MoM, -25% YoY). The softer April figures were largely expected given the lack of sales and service tax- (SST) exempt deliveries and shorter working month. Despite the soft April numbers, we remain positive on the sector as our recent ground checks show a healthy waiting period across major marques, suggesting resilient underlying demand.

• A seasonally softer month. April TIV fell 41% against a record-breaking March. After adjusting for the marques that only disclose on a quarterly basis, TIV was still down by 37% MoM. All major marques saw MoM declines, with Proton and Perodua falling by 36% and 41%, while Toyota/Lexus and Honda each fell by 26% and 41%. The strong MoM declines are attributable to: i) A high March base, ii) lack of SST-exempt deliveries, and iii) shorter working month, following the Aidil Fitri holidays.

• April TPV fell 25% YoY, 46% MoM. Proton and Perodua saw the largest declines with 51% and 46%, while Toyota/Lexus and Honda each fell by 33% and 28%. The TPV’s strong MoM decline is likely attributable to the same reasons for the strong MoM decline in TIV.

• Recent ground checks suggest resilient underlying demand. Because the soft April TIV and TPV were largely expected, in our view, we are not concerned about the MoM and YoY declines. From our recent ground checks at the Malaysia Auto Show 2023 – where we spoke to car dealers from various brands – we learned that despite the lack of SST-exemption, car dealerships have still been receiving a healthy amount of orders, especially for newly launched models. This is reflected in the waiting periods across the key marques (2-6 months for Perodua, 3-6 months for Toyota and 1-6 months for Honda). While there is generally no waiting period for most Proton models, the X90’s recent launch could help boost Proton’s numbers as some dealers had started taking the X90 orders even before its launch.

• Still OVERWEIGHT. Despite the soft April TIV and TPV, we remain positive on the sector, as we think that the recently launched models should continue to drive customer orders and thus, corporate earnings. We think the healthy wait times for the major marques provide earnings visibility, especially for UMW and MBM Resources (MBM). The sector also offers attractive yields of 4-10%, with MBM offering a 10% FY23F yield. We maintain our 2023F TIV of 680k units (MAA 2023F: 650k).

• Our top picks are still BAUTO and UMW. We still like UMW for: i) Being the prime beneficiary of the strong orders of Toyota Vios and Perodua Axia, ii) its recovering aerospace segment, and iii) its 4% dividend yield. We also like BAUTO for its continued volume growth of Mazda cars (driven by the local assembly of the CX-30), Kia, and Peugeot. It also offers an attractive FY24F (Apr) yield of c.9%.

• Key risks include softer-than-expected orders and deliveries, and resurgent supply chain issues.

Source: RHB Research - 22 May 2023