• 3Q23 sector results were above estimates, mainly as ASPs surprised on the upside. Order backlogs continued to ease as companies posted stronger delivery of sales units. We anticipate 2023 will be a recordbreaking year for TIV, with strong 4Q23 results ahead. Maintain NEUTRAL; Top Pick: Bermaz Auto (BAUTO).

• Generally, the performance of the auto sector exceeded expectations as Sime Darby (SIME), UMW and BAUTO beat expectations, while Tan Chong Motor fell short of expectations as it fell further into the red. SIME began its FY24F (Jun) with robust 1QFY24 results, backed by stronger YoY contributions from the automotive and industrial segments. Its auto sales volumes in Malaysia and China have exceeded our forecasts, although automotive earnings from the latter were dragged by lower ASPs due to the EV price war. Meanwhile, its Australasia industrial segment continued to chart solid earnings, thanks to its newly-acquired subsidiary, Onsite Rental. While UMW’s performance beat our expectations, our TP of MYR5 (which matches the valuation implied in SIME’s acquisition offer) is maintained as it implies a 14x FY24F P/E, above its historical mean of 12x. BAUTO’s 1QFY24 (Apr) stronger-than-expected results were mainly due to earnings beat from stronger-than-expected sales volumes in Malaysia and the Philippines, as well higher-than-estimated ASPs in Malaysia. In the broader context, 3Q23 sector-wide sales volume in Malaysia rose 19% QoQ, in view of a seasonally shorter working 2Q.

• Our 2023F TIV will likely exceed estimates, but this is already in the price. November recorded TIV of 72k, bringing YTD TIV to 719k units. Given the average trailing 12-month average is 66k, it is safe to assume that 2023 will be another record-breaking year for TIV, likely due to downtrading activities to cheaper cars. However, we believe the market has already priced in the potential of another record-breaking year in 2023.

• Outlook. Considering the easing backlog of major marques such as Perodua and Toyota, which have decreased from 155k and 40k as of endAugust to 140k and 34k as of end-November, this supports our thesis that TIV in 2024F will likely soften YoY, especially after the two solid years (2022 and 2023). While there are upcoming launches of new EVs within the 2024 pipeline, eg BYD Seal, Volvo EX30, and Toyota bZ4X, we do not think this will significantly move the 2024F TIV needle.

• Keep NEUTRAL on the sector, premised on an uncertain 2024 as the sector’s outlook remains hazy. We introduce our 2024 TIV forecast of 625k units, implying a 14% YoY decline from our 2023 projection of 725k. We are anticipating a softer TIV, as we do not see any compelling factors for 2024 auto sales to book another year-high. Our Top Pick is still BAUTO as we still like its c.10% dividend yield and believe its car sales will remain resilient vs that of other marques.

• Key downside risks include softer-than-expected orders and deliveries, as well as resurgent supply chain issues. The opposite represent upside risks.

Source: RHB Securities Research - 18 Dec 2023