Investment Highlights

• In May 2020, the auto sector recorded a lower TIV of 23.0K units (-62% YoY). From our ground checks, we gather that the Road Transport Department only resumed its new vehicle registration operations on 13 May 2020, when dealerships and showrooms started to gradually reopen for business nationwide. This has resulted in a weaker showing for May TIV. Our checks with certain industry players revealed that vehicle bookings were encouraging after the sales tax (SST) exemption announcement.

• We note the following for major car marques in May’s sales figures:
  
  1) Perodua registered a total sales volume of 7.9K units (-66% YoY) in May. The Aruz SUV sold a total of 1.0K units for the month. Perodua said it plans to nearly double its investments for 2020 to RM1.1bil from RM569mil in 2019. The bulk of it will be utilized for plant modernization, expansions as well as preparation for a new model, which we strongly believe to be the Perodua D55L B-segment SUV – we expect the 5-seater to make its debut in the local market in 2H2020.
  
  2) Proton delivered 5.7K units (-47% YoY) in May, including 0.8K units for the X70. The X70 continued to be the bestselling SUV in Malaysia for 5M2020 with 4.9K units sold. We expect the X70 and the Proton’s mainstay PIES models to continue selling well as these entry-level models are more affordably priced and offers value-for-money now with the price reductions post-SST exemptions.
  
  Proton’s market share stood tall at 25% in May, resulting in a runner-up YTD market share of 21.3%, only behind Perodua at 41.1%.
  
  3) Honda sold a total of 2.7K units (-75% YoY) in May, and in terms of market share of non-national marques, it now stands behind Toyota at 10.7%. The new 2020 7-seater Honda BR-V was recently launched on 2 June 2020 in two variants with a price of RM89.9K–96.9K. The BR-V now costs about 11% more than before, not surprising given that we saw a 6–9% price hike for the other Honda CKD models such as the City, Jazz and CR-V.
  
  4) Toyota sold a decent 3.4K units (-50% YoY) in May after registering sales of only 13 units in April due to the MCO. YTD 5MCY2020, Toyota managed to clinch the top spot for market share under the non-national segment at 10.8%, marginally above Honda’s 10.7%. According to UMWH management, Toyota’s top three best-selling models for the month were the volume-driven Vios, Yaris and Hilux which comprised 77% of its total sales in May.
  
  5) Nissan continued its poorer-than-expected sales volume of 0.3K units (-70% YoY) in May. We strongly believe the ongoing weak performance was due to Nissan’s unattractive product line-up, uncompetitive pricing and a lack of new launches. We note that only 0.2K units of Serena S-Hybrid were sold for the month. Tan Chong Motor group has recently guided that the all-new Nissan Almera CKD will be launched in 2H2020 – with no indication on pricing or tentative dates.
  
  6) Mazda posted a sales volume of 0.5K units (-53% YoY) in May. We spoke to Bermaz Auto recently, and the group said that daily bookings shot up substantially post-SST exemption announcement. To further sweeten its deals, BAuto is giving an extra 1-year extension of warranty and free service period to 6 years (from 5 years earlier).
• The approval rate for loans on passenger cars stood at 30.6% in April, a decrease of 26.6% from March 2020 and was lower than the average of 61.4% in 2019.
  
  We maintain our OVERWEIGHT stance on the auto sector with a slightly lower TIV projection of 565K units (previously 580K units) for 2020 after our recent tweak for Nissan and Toyota sales volume assumptions after UMW Holdings and Tan Chong Motor’s 1QFY20 results review (UMW Holdings guided that consensus estimates were too bullish). We have BUYs on DRB-Hicom (FV: RM2.49), MBM Resources (FV: RM4.62) and Bermaz Auto (FV: RM1.79). We see an improvement in the outlook for the auto sector in 2HCY2020 as most businesses have resumed operations after the lifting of restrictions for most economic activities. We strongly believe that the expansionary sales tax (SST) exemption stimulus implemented by the government would substantially spur increased passenger vehicle buying interest, similar to the “tax holidays” in 2018.

Source: AmInvest Research - 25 Jun 2020