Investment Highlights

• We maintain OVERWEIGHT rating on the sector on the anticipation of continued strong sales of motor vehicles throughout 2023 even though the sales tax-free window has already expired. Our optimism is driven by several factors, including robust order backlogs, healthy bookings and upcoming new product launches.

• Malaysian Automotive Association (MAA) June total industry volume (TIV) rose 1% MoM to 62,569 units as sales volume of both passenger and commercial vehicles contributed single-digit growth. Passenger vehicles increased 1% MoM to 55,692 units while commercial segment rose by 3% MoM to 6,877 units backed by stable demand. On a YoY basis, TIV slid 2% as most of major marques saw YoY declines, with Honda experiencing a significant drop of 35% and Nissan/Renault 22% while Toyota/Lexus slid by 3% and Proton 2%. This was due to the impact of the sales tax-exemption expiry in June last year. Nevertheless, this decline was partially offset by notable YoY growth in Mazda, which increased by an impressive 3.3x, and Perodua, which rose 7%.

• Perodua’s cumulative market share improved to 39.8% (+1.4%-point YoY) with year-to-date (YTD) sales of 144,690 units (+14% YoY), achieving achieving 46% of its 2023 sales target of 314,000 units and 48% of our forecast (300,000 units). We believe that Axia, Myvi, Bezza, Alza and Ativa supported the sales of 22,553 units in June (-8.7% MoM and +6.6% YoY). For subsequent launches, we think that Aruz (in its 4th year), Myvi (in its 6th year) or Bezza (in its 7th year) could be on the cards as they are all due for a mid-lifecycle update.

• Toyota’s YTD market share was stable at 13.4%. In June, 8,669 units were delivered (+8% MoM, -3% YoY), comprising mainly all-new Vios, Yaris, Corolla Cross and Hilux. The company currently has a waiting period of up to 6 months.

• Honda’s cumulative market share declined by 2.7%-point YoY to 9.3%. Honda officially launched a new model – WR-V on 13 July 2023, receiving robust reception of 2,500 units since bookings were opened on 12 June 2023. In addition, a hybrid CR-V could be launched in 2H2023 as the model was already introduced in Thailand in March this year. However, June sales were 5,023 units, down 23% MoM and 35% YoY.

• 1,680 Mazda cars were sold during the month (-5% MoM, +3.3x YoY), translating to a steady YTD market share of 2.6%. Looking ahead, we anticipate that the introduction of the more affordable Mazda CX-30 CKD model could play a crucial role in supporting 2023 sales volume.

• Proton’s cumulative market share grew 3.6%-point to 20.9% as sales grew 6% MoM but declined 2% YoY to 13,862 units in June. Notably, more than 500 units of the X90 hybrid model have been delivered since its launch on 7 May 2023. Moreover, the waiting period for the X90 has now been reduced to less than 6 months.

• No surprise from Nissan. June sales volume dropped 9% MoM and 22% YoY to 822 units. YTD market share was a small 1.4%. Without significant new model introductions to stimulate sales volume growth, we do not anticipate the carmaker making a comeback in the near future.

• Our top picks are Bermaz Auto (BUY, FV:RM2.77/share) as we believe the introduction of the more affordable Mazda CX- 30 CKD model will positively impact sales volumes, while sales of Kia and Peugeot cars should continue growing from a low base. We also like MBM Resources (BUY, FV:RM5.22/share) which have sizeable order backlogs and a strong pipeline of new launches. FY23F dividend yields are also highly attractive at 8% for Bermaz Auto and 9% for MBM Resources.

Source: AmInvest Research - 24 Jul 2023