Investment Highlights

• We maintain OVERWEIGHT recommendation. Strong industry order book following the extension of the SST exemption registration period provided auto firms with more than 6 months of sales visibility. It also prevents a hard landing for industry sales as automakers will have time to replenish their order book before the end of March 2023.

• Chip shortages are also gradually improving as the supply chain readjusts. This would help to smoothen deliveries as auto firms rush to fulfil backlogged orders. With the view that the inventory shortage could ease, coupled with a positive response by consumers to the extension of the SST exemption registration period, we are raising our 2022 total industry volume (TIV) forecast to 610,000 units (from 590,000 units), implying a 20% YoY growth. The Malaysian Automotive Association (MAA) has also revised its forecast upwards to 630,000 units from 600,000 units.

• MAA’s June TIV rebounded 25% MoM to 63,366 units with both passenger (+28%) and commercial (+7%) vehicles reporting sequentially stronger sales volume. The recovery in the TIV is mainly attributed to a post-Hari Raya Aidilfitri holiday ramp-up in production as automakers focused on clearing their backlogged orders. Almost all key marques reported stronger MoM sales except for Mazda. YoY, TIV improved significantly from a low base last year which was affected by the lockdowns. The cumulative YTD 6M2022 TIV now stands at 331,383 units (+33% YoY). We expect a further improvement in 2H2022 as TIV will be bolstered by the introduction of key models such as the all-new Honda HRV and Perodua Alza.

• Mazda’s sales volume declined 61% MoM to 511 units as its production was affected by China’s lockdowns. The marque’s sales are expected to recover to 800–1,000 units in upcoming months. From Bermaz Auto’s (BAUTO) perspective, the impact of lower Mazda sales would be offset by the pick-up in sales of the Kia and Peugeot marques. The 2 brands are expected to report combined sales of 300–400 units per month.

• Proton’s sales jumped 53% in June to 14,151 units after 2 months of subpar performance. The recently refreshed Proton Saga is the national automaker’s best-selling model with 5,460 units sold followed by the Proton X-50 which recorded 4,473 registrations. According to Proton, the parts supply issue has gradually improved and all its 3S/4S centres and warehouses have fast-moving parts stock levels of 3 months.

• Perodua recorded 21,164 units (+12% MoM) of new vehicle registrations during the month under review. The automaker’s 2H2022 sales volume will be bolstered by the introduction of the new Perodua Alza. The model was officially launched on 20 July and was well received by the market. Perodua has collected over 30,000 bookings with 65% of prospective buyers opting for the top range AV variant. The carmaker has a ready stock of 4,300 units which will be registered this month. Given the planned production capacity for the new model at 3,000 units/month, Perodua intends to increase the capacity to 4,000 units to meet the strong demand.

• Honda recorded decent sales volume of 7,692 units (+40% MoM) during the month despite the absence of the Honda HR-V. The new generation of the model was officially launched in mid-July and the sales number would only be reflected next month. Honda Malaysia has gathered more than 20,000 bookings on the all-new HR-V, which translate into a waiting list of more than 12 months. Separately, Nissan/Renault sales volume shrank 25% MoM to 1,052 units.

• Our top picks are BAUTO (fair value RM2.25), MBM Resources (FV RM5.00), and UMW Holdings (FV RM4.60).

Source: AmInvest Research - 22 Jul 2022