Investment Highlights

• We maintain our OVERWEIGHT stance on the auto sector with an unchanged TIV projection of 500K units for 2020. We expect a stellar improvement in the outlook for the auto sector in 2H2020, which will be bolstered by the implementation of the SST holiday from 15 June until 31 December 2020. We believe that the SST exemption will spur buying interest for passenger vehicles, especially the national brands Proton and Perodua.

• In August 2020, the auto sector recorded an encouraging TIV of 52.8K units (-8% MoM, +3% YoY), driven by two key reasons: 1) the SST holiday from the ERP stimulus package; and 2) aggressive promotional campaigns by car companies to further promote sales.

• We note the following for major car marques in August’s sales figures:
  
  1) Perodua registered a total sales volume of 22.6K units (+13% YoY) in August, with 2.2K units of the Aruz SUV, bringing a YTD total sales to 11.1K units. Perodua guided that the launch of the unnamed Perodua D55L 5-seater SUV will be delayed till 2021. On a different note, Perodua has ramped up its monthly production volume to about 25.0K/month to cater for the uptick in demand for its vehicles due to the SST holiday. We note that Perodua sold an average of 20.0K/month in 2019.
  
  2) Proton delivered 11.4K units (+25% YoY) in August, with the X70 selling 2.8K units for the month. The model continued to be the best-selling SUV in Malaysia for 8M2020 with 12.7K units sold YTD. We expect the X70 and Proton’s mainstay PIES models to continue doing well in 2H2020 as these entry-level models are even more affordably priced and offer value-for-money now with the price reductions from SST exemptions. Separately, the long-awaited Proton X50 Bsegment SUV (which comes in 4 variants) is now open for bookings nationwide and we estimate the launch to be in midOctober 2020. Channel checks have indicated that it has crossed 10.0K booking units in less than a week of the announcement. Proton has not yet announce the official prices for the X50 SUV.
  
  Proton’s market share stood tall at 22% in August, resulting in a runner-up YTD market share of 21.6%, behind Perodua at 42.1%.
  
  3) Honda sold 5.7K units (-25% YoY) in August and its market share of the non-national marques is now 10.1%, standing behind Toyota. Honda Malaysia has announced that the all-new 2020 Honda City is now open for bookings as it targets a 4Q2020 launch – albeit no indication on the pricing at this point in time. The 5th-generation Honda City will come in 4 variants with an option for a hybrid.
  
  4) Toyota sold a decent 5.7K units (+5% YoY) in August, bringing its 8M20 sales total to 31.3K units. YTD. Toyota managed to clinch the top spot for market share in the non-national segment at 11.0%, marginally above Honda’s 10.1%. According to the UMWH Group, Toyota’s top three best-selling models for the month were the volume-driven Vios, Yaris and Hilux which comprised 76% of its total sales in August.
  
  5) Nissan continued to show a lacklustre performance in its sales volume, recording a total of 1.5K units (-9% YoY) in August despite the SST exemption. 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 0.4K 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, However, there was no indication on its pricing nor tentative dates for the launch.
  
  6) Mazda posted a sales volume of 1.2K units (+20% YoY) in August, recording its best sales performance in 16 months. We believe that the bulk of its sales volume is from the CX-5 and CX-8 as these two models are the main beneficiaries of the 100% SST exemption, compared to its other CBU models. To further sweeten the deal, 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 54.3% in July, an increase of 41% from June 2020 and was lower than the average of 61.4% in 2019.

Source: AmInvest Research - 22 Sept 2020