Investment Highlights

• We maintain our OVERWEIGHT recommendation and 2022 total industry volume (TIV) forecast of 590,000 units, implying a 16% YoY growth. The government’s recent decision to allow prospective buyers who have placed orders before 30 June 2022 and register their vehicles before 31 March 2023 to enjoy the sales tax exemption bodes well for the sector. This will provide a 9-month sales visibility for the sector while preventing a hard industry sales landing as automakers will have time to replenish their order book.

• Given the robust demand, automakers/distributors may face no issue to pass higher costs from rising raw material prices to end consumers. While supply disruption and inventory shortage issues are likely to remain the sector’s key concerns, we believe carmakers/distributors with a more resilient supply chain e.g. Perodua and UMW Toyota have a competitive edge to gain market share.

• The Malaysian Automotive Association’s (MAA) May TIV fell 12% MoM to 49,603 units with both passenger (-12%) and commercial (-8%) vehicles reporting sequentially lower sales volume. This is likely due to inventory shortages affecting the industry’s production, shorter working month due to the Hari Raya Aidilfitri holiday, and lower production volume ahead of new model launches. Almost all key marques reported lower MoM sales except for Toyota/Lexus and Proton. Nevertheless, we could expect an improvement in June/July TIV bolstered by the introduction of several key models such as the all-new Honda HR-V and Perodua Alza and a longer working month. The cumulative YTD 5M2022 TIV of 265,656 (+8% YoY) is still on track to meet our 2022 forecast of 590,000 units (vs. MAA: 600,000 units).

• Perodua’s sales volume declined 26% MoM to 18,901 units from a high base last month. The automaker’s 2H2022 sales volume will be bolstered by the introduction of the new Perodua Alza. The model will be officially open for booking starting today. Therefore, we could expect deliveries to take place at the end of July or beginning of August, barring unforeseen circumstances. Historically, Perodua sold 1,200 units/month of Perodua Alza on average.

• Proton delivered 9,279 units of passenger vehicles in May; an 11% improvement compared to the prior month. However, its sales volume was capped by worsened inventory shortages due to the China lockdown. For comparison, the automaker sold 10,000-13,000 units between September – December 2021, before the supply issue exacerbated.
• Mazda sales normalised back to 1,306 units (-29% MoM, -4% YoY) from high base in April. April sales volume of 1,830 units was exceptionally higher due to backloads from lower January and February deliveries. Given the supply shortage, we expect a more normalised level of 1,000 – 1,200 units monthly deliveries for upcoming months. Demand for Mazda cars remains robust with backlogged orders crossing the 6,000-unit mark (vs. 5,000 units in mid-May). Separately, Nissan/Renault sales volume declined 10% MoM to 1,402 units.
• Our top picks are BAUTO (fair value RM2.25) and UMWH (FV RM4.60). We also have a BUY call on MBM Resources (FV RM5.00).

Source: AmInvest Research - 23 Jun 2022