Investment Highlights

• We maintain our OVERWEIGHT stance on the auto sector with an unchanged TIV projection of 575K units for 2021. We expect the strong sales volume momentum to sustain throughout 1H2021, bolstered by the extension of the SST exemption from 1 January until 30 June 2021. We believe that the SST exemption will continue to spur buying interests for passenger vehicles, especially the national brands Proton and Perodua.

• In April 2021, the auto sector recorded a stellar, albeit lower TIV of 57.9K units (-9% MoM), largely due to two main factors: i) lower footfalls into showrooms following the enforcement of the CMCO in Selangor, KL, Johor, Penang, Kelantan and Sarawak; and ii) a shortage of semiconductor chips which had impacted the production and sales of certain car makers. We expect May 2021 TIV to be weaker MoM attributed to: i) the implementation of MCO 3.0; ii) shorter working month due to Hari Raya festive holidays; and iii) the semiconductor chip shortage.

• We note the following for major car marques in April’s sales figures:
  
  1) Perodua registered 20.4K units (-17% MoM) in April, with the Ativa selling 4.6K units for the month. Since the model’s launch in early March 2021, the group has delivered about 9.0K units. We gather that the waiting period for the model is 2–4 months. In our opinion, the Ativa is one of the best value-for-money cars domestically with about 95% localisation rate (the highest initial local content for any Perodua model). Meanwhile, the production of the Myvi, Aruz and Alza was affected by the shortage of semiconductor chips, which has a temporary impact on its total sales deliveries for the models. This was observed through the lower passenger cars (sedan + hatchback) sold by the group in April of 12.4K units vs. the average of 15.2K in 2020 (19% lower).
  
  2) Proton delivered 14.7K units (-1% MoM) in April. The X50 and X70 chalked up sales of 3.5K units and 2.1K units respectively for the month. We understand more than 15.3K Proton X50s have been delivered to customers. We gathered from our channel checks that the waiting period for the Proton X50 is over 10 months, an indication of how well received the model is locally. As of now, we highlight that the global chip shortage issues have not affected both the Xseries SUVs.
  
  Proton’s market share stood at 25.3% in April, resulting in a runner-up YTD market share of 23.9%, behind Perodua’s 39.7%. Proton has introduced its sales volume target for 2021 at 132.0K units (+22%).
  
  3) Mazda posted an encouraging sales volume of 1.6K units (+32% MoM) in April. We expect sales volume to be at least average the 1.1K level for the next few months until the end of the SST exemption period. We believe that the bulk of its sales will be coming from the CX-5 and CX-8 as the mainstay models are the main beneficiaries of the 100% SST exemption, compared to its other CBU models. Management guided that it will be reverting to its 5-year warranty and free maintenance promotion, which we believe will substantially help Bermaz Auto improve its profit margin in 2021.
  
  4) Honda sold 5.4K units (-40% MoM, +172% YoY) in April. We believe the decline in sales volume was due to the highbase effect in March, as there was disruption in its production when the government announced that automakers could not operate in the first week of the MCO in February, which was then lifted shortly after. YTD, Honda’s market share stood at 10.2%. Honda has set its a sales volume target of 80.0K units for 2021.
  
  5) Toyota posted a strong sales volume of 8.1K units (+12% MoM) in April. In terms of market share, Toyota extends its lead in the pole position in the non-national segment at 13.2%, above Honda’s 10.2%. It highlighted that the spike in sales volume was supported by the strong demand of the Toyota Corolla Cross and Harrier.
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• The approval rate for loans on passenger cars stood at 52.7% in March, a slight decrease of 6.5% from January 2021 and was higher than the average of 54.8% in 2020.

Source: AmInvest Research - 27 May 2021