Investment Highlights

• We retain our OVERWEIGHT recommendation premised on sustained underlying demand for cars moving forward, supported by economic growth and the persistent need for private vehicles, being Malaysians’ primary mode of transportation. Automobile firms are still seeing a healthy daily order rate even after the end of the SST exemption period on 30 June 2022. Given the long waiting list and sturdy booking rate, car deliveries are likely to spill over beyond March 2023 and this could cushion a fall in industry sales.

• The Malaysian Automotive Association’s (MAA) August TIV jumped to 66,614 units (+36% MoM), as automobile firms ramped up production and deliveries to clear off long outstanding orders. Both passenger (+37%) and commercial (+29%) vehicles reported sequentially stronger sales volume. This brings 8M2022 TIV to 447,206 units (+63% YoY), exceeding our earlier expectation. The inventory shortage previously affecting the industry’s deliveries likely has eased and led to the stronger-than-expected sales volume in August. Taking this into account, we revise upwards our 2022 TIV forecast to 655,000 units (from 625,000 units) (MAA: 630,000 units). We also reduce our 2023 TIV forecast to 600,000 units (from 630,000 units) on expectation that deliveries will be brought forward into 2022.
  Notably, all key brands reported stronger sales volume MoM (Exhibit 2), except for Nissan/Renault (-6% MoM), with Honda (+51% MoM), Perodua (+42% MoM) and Toyota/Lexus (+37% MoM) improving the most. Industry sales volume significantly surged 2.7x YoY due to a low base last year as the sector was affected by movement control orders.

• YTD, Perodua maintained its leadership with a market share of 38.4% (+1%-point vs. 2021), as the marque continues to provide affordable value products to consumers. The automaker’s delivery of Perodua Alza sustained at 3,666 units in its second month since launching in July. Supported by a slew of new model launches this year, Honda is the biggest winner YTD, which gained 1.4%-points market share while Proton lost the most (-3.3%-points) as its production was affected by flash floods and inventory shortages in 1HCY22. Separately, Mazda sales volume improved to 1,371 units (+22% MoM) as production normalised from supply disruptions caused by China’s lockdowns.

• New model launches next year. Given the current robust order book, distributors/automakers most likely would delay their new model launches until after March 2023. While there is no official confirmation from the companies, we are anticipating key volume models such as the all-new Toyota Vios, Perodua B-segment sport utility vehicle and Proton’s next Geely-based model to make their debut next year.

• Our top picks are BAUTO and MBM Resources given their high sales visibility and product updates which have garnered encouraging customer receptions.

• Key risks. Worse-than-expected increase in the cost of living could lead to consumers cutting discretionary spending and poses a downside risk to our recommendation and FVs. While the probability is low, the reintroduction of goods and services tax (GST) amid an inflationary environment would be a double whammy, setting back consumer sentiments.

Source: AmInvest Research - 22 Sept 2022