Investment Highlights

• We retain OVERWEIGHT rating on the sector based on the expectation of sustained automobile sales momentum for the rest of the year. We are optimistic due to robust order backlogs, supported by positive booking trends and marque facelifts, which will attract more new customers. During the month, notable updates include the Toyota Yaris B-Segment, Toyota Hilux GR Sport, Nissan Navara and the Honda Civic Type R FL 5. Meanwhile, Honda CR-V sixth-gen is among the highly anticipated model facelifts with a market debut soon. Additionally, a firm economic outlook with 2023F-2024F GDP growth of 4%-4.5% and labour market improvement will continue to support resilient consumer spending going forward.

• Malaysian Automotive Association (MAA) August total industry volume (TIV) contracted by 6.4% MoM to 68,156 units. The MOM drop was driven by sales volume decline for commercial vehicle by 7.3% to 6,596 units and passenger segment decreasing by 6.3% to 61,560 units. The underperformance stemmed from consumers’ cautious approach, the Chinese Hungry Ghost festival and possible delays in purchasing decisions on expectations that Budget 2024 might introduce incentives for the automotive industry. Despite the monthly basis sales drop, the YTD TIV accounts for 88% of our full-year forecast of 650,000 units, which remains achievable due to better prospects in the coming months. On a YoY basis, TIV rose by 4.6%, whereby growth was mainly contributed by Mazda 39% and Perodua 18%. However, sales of Nissan/Renault nosedived 19% YoY, which dragged the overall sales for the month. In October 2023, MAA predicts that sales would be on par with the current performance.

• As of September 2023, YTD sales stands at 19,030 units for hybrid vehicles and 5,630 units for electric vehicles (EV). EV-related incentives in the recently announced Budget 2024 reflects the government’s commitment in accelerating EV infrastructural development. Nonetheless, we are neutral on the impact to automobile sales from the incentives given the relatively high cost of EV ownership and the limited availability of charging facilities currently.

• Perodua’s cumulative market share increased by 2.9%-point YoY to 41% with year-to-date (YTD) sales of 233,227 units (+19% YoY). The growth implies a 75% attainment of its 314,000 units sales target and is on track to reach our projected 300,000 units target. Affordable car models such as Axia, Myvi, Bezza, Alza and Ativa remains favorable among domestic customers, which will sustain the strong sales volume growth. The marque’s high localisation rate of 95% offers near-insulation from foreign exchange risks while ensuring supply continuity to meet high demand and large backlog orders.

• YTD market share for Toyota slid by 0.3%-point YoY to 13.5% while recording an improvement in year-to-date (YTD) sales of 76,511 units (+8%YoY). In September, 9,228 units were sold (-10.2% MoM, -0.1% YoY), marking an overall decline, attributable to the weakening of Malaysian ringgit against the US dollar. A supply disruption is anticipated for Toyota CBU models over the coming weeks as some operational lines in Japan were suspended due to an accident at a supplier’s facility, impacting the production of several Land Cruiser models and minivans.

• Honda’s cumulative market share fell to 9.5% (-2.2%-point YoY). Monthly sales dropped to 6,514 units (-16.3% MoM, - 9.4%YoY) despite launching a promotional campaign in conjunction with the Malaysia Day month. Nonetheless, we foresee a modest pickup in TIV sales for Honda given the extension of the campaign until October 2023.

• 1,393 Mazda cars were sold during the month (-25.9% MoM, +38.6% YoY), resulting in a small increase in market share to 2.5% (+0.4%-point YoY). Recently, Bermaz Auto launched its updated Mazda 3 IPM that comes with a revised kit list and a downsized variant line-up, which is anticipated to bolster Mazda’s sales volume.

• Proton’s YTD market share inched downwards by 1%-point to 20.2% with 12,006 units sold in September. There was an improvement in year-to-date (YTD) sales by 17% YoY to 114,806 units despite the sales volume decline (-12% MoM, - 18%YoY). Proton is expected to launch its sedan model, the ‘Proton S70’ in the upcoming months.

• Nissan continues below-par performance. In September, sales of 816 units were recorded, improving by 2.0% MoM and declining by 19% YoY. Nissan’s small cumulative market share further dropped to 1.3% (-0.8%-point). Although Tan Chong has expanded efforts in introducing new models and launching uplifts, we believe that it would not significantly move its TIV sales volume needle given the highly competitive automobile market in Malaysia.

• Our top picks are Bermaz Auto (BUY, FV:RM3.29/share) and MBM Resources (BUY, FV:RM5.22/share) riding on new model facelifts, large order backlogs and normalisation in the automotive industry supply chain environment. Also, FY23F dividend yields are also highly attractive at 7% for Bermaz Auto and 8% for MBMR.

Source: AmInvest Research - 19 Oct 2023