Investment Highlights

• We maintain our OVERWEIGHT recommendation on the sector with a 2022 TIV forecast of 555,000 units, implying a 9% YoY growth. In 2021, total industry volume declined 4% YoY as the sector’s supply chain was affected by a series of movement control orders imposed throughout the year. However, we believe that the worst is over and we expect industry sales to rebound in 2022 as the supply chain normalizes and consumers’ confidence gradually recovers underpinned by the pick-up in broad-based economic activities. Our top picks are Bermaz Auto (fair value RM2.00) and UMW Holdings (FV RM3.90).

• Ending the year with a bang. The Malaysian Automotive Association (MAA) reported a seasonally stronger total industry volume (TIV) of 65,184 units (+9% MoM) in December 2021. The car sales were slightly lower compared to last year’s high base (-5% YoY), as consumers were rushing to buy cars, expecting the sales and service tax (SST) exemption to end in December 2020. Almost all key brands reported sequentially stronger sales volume except for Proton (-2% MoM) and Mazda (-10% MoM). This brings the full-year 2021 TIV to 508,911 units (-4% YoY). The weaker 2021 TIV is mainly attributed to the prolonged lockdowns.

• 2021 sales breakdown by brands:
  • Perodua’s 2021 sales declined 14% due to the supply chain disruption and exacerbated by the chip shortage crisis affecting the production of its flagship model, Perodua Myvi. Nevertheless, we expect sales to rebound in 2022 with a sales forecast of 240,000 units, implying 26% YoY growth. Due to the overwhelming response to the recently launched Perodua Myvi facelift, Perodua could potentially delay the introduction of the all-new Perodua Alza which was previously expected to make its debut in 1H22. This is to avoid further exacerbating the chip shortage impact that the company currently faces.
  • Proton sold 111,695 units (+3%) of new vehicles in 2021, a third consecutive year of improvement since it formed a strategic partnership with Gelly in 2017. Proton’s 2021 sales were fuelled by deliveries of the Proton X50 with 28,774 units delivered. The model was nominated as the best-selling sport utility vehicle (SUV) in 2021. Meanwhile, the seven-seater Geely Haoyue SUV has been spotted on Malaysian roads and is being speculated to be the next Geely-based model to be introduced by Proton.
  • Toyota’s sales rebounded strongly in 2021 at 71,585 units (+22%) compared to last year’s low base. We expect the brand to maintain its performance, boosted by the recently launched completely knocked down (CKD) Toyota Corolla Cross. As of early January 2022, UMW Toyota (UMWT) has garnered three months’ worth of bookings after just one month it opened the booking for the Corolla Cross.
  • Mazda reported a lower 2021 sales of 10,660 units (-12% YoY), dragged by the prolonged movement control orders. The 10% MoM decline in the brand’s December sales is not a cause for concern as we understand that many customers delayed their purchases to 2022. Bermaz Auto currently has a healthy order book of 3,000 units pending delivery.
  • Honda’s sales declined 12% to 53,031 units, extending its losing streak to four consecutive years of declining sales. We believe Honda is losing its SUV’s market share to Proton, Perodua, and Toyota after the three brands made further inroads into the segment with the launch of the X50, X70, Ativa, and Corolla Cross respectively.
• Sales of commercial vehicles climbed significantly to 56,246 units (+15.9% YoY), especially in the 4Q21, a sign of improving business sentiment now that the economy has reopened.

• New model launches. Bermaz Auto Alliance recently launched the B-segment SUV Peugeot 2008 at a competitive price of RM127K. The model will be mainly competing against the Honda HR-V (RM105K–RM119K). Other notable models in the pipeline are the long-awaited all-new Perodua Alza, the next generation HR-V, the Kia Sportage, and potentially a new Geely-based model by Proton. The locally assembled variant of the Mazda CX-30 could be introduced as early as end- 2022.

• No change in our OVERWEIGHT recommendation on the sector. The auto sector’s earnings are expected to rebound in 2022 as demand for new cars would be bolstered by the SST exemption, improving consumer confidence as the economy gradually recovers, and the accommodative interest rate environment. No change in our 2022 TIV forecast of 555,000 units, which implies a 9% YoY growth. Our top picks are BAuto (FV RM2.00) and UMW Holdings (FV RM3.90).

• Key risks: The unfavourable forex trend of a weakening MYR against the USD and JPY poses risk of margin compression for auto companies, particularly UMW Holdings (USD), Tan Chong (USD) and BAuto (JPY). A worse-than-expected chip shortage crisis due to supply chain disruptions is another key risk that could derail the sector’s earnings.

Source: AmInvest Research - 24 Jan 2022