Investment Highlights

• We maintain our OVERWEIGHT stance on the auto sector with an unchanged TIV projection of 500K units for 2020. We expect the strong sales volume momentum to sustain for 4Q2020, bolstered by the implementation of the SST holiday from 15 June until 31 December 2020. We believe that the SST exemption will continue to spur buying interests for passenger vehicles, especially the national brands Proton and Perodua.
• In September 2020, the auto sector recorded an impressive TIV of 56.4K units (+7% MoM, +26% 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 September’s sales figures:
  1) Perodua registered a record high total sales volume of 25.0K units (+47% YoY) in September, with 2.5K units of the Aruz SUV, bringing a YTD total sales to 13.6K units. Perodua guided that the launch of the unnamed Perodua D55L 5- seater SUV will be delayed till 2021. We note that Perodua also recorded the highest quarterly sales performance ever, with a total of 70.8K units sold from July to September 2020, 16% higher compared to the total sales volume of 61.2K units sold during the tax holidays in June–August 2018. Hence, we are optimistic of the upcoming results of MBM Resources (BUY; RM4.32) as it serves as a direct proxy to Perodua’s impressive sales volume for the quarter.
  
  2) Proton delivered 11.9K units (+37% YoY) in September, with the X70 chalking up 2.8K units for the month. The model continued to be the best-selling SUV in Malaysia for 9M2020 with 15.6K units sold YTD. We expect the X70 and Proton’s mainstay PIES models to continue doing well in 4Q2020 as these entry-level models are even more affordably priced and offer better value-for-money now with the price reductions from SST exemptions. Separately, the long-awaited Proton X50 B-segment SUV (which comes in 4 variants) is now open for bookings nationwide, and we estimate the launch to be in end-October 2020. News reports have indicated that the model has crossed 20.0K booking units less than a month of the announcement.
  
  Proton has not yet announce the launch date and official prices for the X50 SUV. Proton’s market share stood tall at 22% in September, resulting in a runner-up YTD market share of 21.5%, behind Perodua at 42.5%.
  
  3) Mazda posted a sales volume of 1.2K units (+168% YoY) in September, recording its best sales performance in 17 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. We managed to gather a key update from Bermaz Auto (BAuto). The group is at the forefront of a bid to take over two brands from the Naza Group – Kia and Peugeot. We gather from the top brass that it would include contract assembly (CKD), after-sales services and distribution of the said marques. However, it is facing competition from other interested parties such as DRB-Hicom, Sime Darby and Berjaya Group.
  
  4) Honda sold 5.9K units (+2% YoY) in September and its market share of the non-national marques over total TIV is now 10.1%, trailing closely behind Toyota. YTD at 9M20, sales volume stood at 34.7K units (-47% YoY) and we believe the sharp decline in demand was due to the upward price revision of 5-9% all of its CKD products since February 2020.
  
  5) Toyota sold a decent 5.5K units (+5% YoY) in September, bringing its 9M20 sales total to 36.8K units. YTD. Toyota managed to clinch the top spot for the market share in the non-national segment at 10.8%, marginally above Honda’s 10.1%. Our channel checks indicate that Toyota’s mainstay models the Vios and Yaris CKD will be launched in 1Q2021.
  
  6) Nissan continued to show a lacklustre performance in its sales volume, recording a total of 1.7K units (+7% YoY) in September 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 0.5K units of Serena SHybrid were sold for the month.
   
• The approval rate for loans on passenger cars stood at 56.5% in August, an increase of 2.2% from July 2020 and was lower than the average of 61.4% in 2019.

Source: AmInvest Research - 21 Oct 2020