Investment Highlights

• We maintain NEUTRAL on the automotive sector due to softer sales prospects. Coming off a high base in 2023, we foresee a softening in the automotive sector’s total industry volume (TIV) in 1H2024. We expect a lower 2024F TIV of -6% YoY to 670k units compared to our 2023F TIV forecast of 710k units as vehicle sales are expected to normalise after the expiry of SST exemption back in June 2022.
  
  Headwinds could rise from potential upside to inflation from the anticipated rollout of targeted subsidy rationalisation for RON95 in 2H2024, impacting consumers’ real disposable income, keeping a lid on consumption and constrain growth. The MIER 3Q2023 consumer sentiment of 78.9 marks the lowest level since pandemic-impacted 2Q2021, also down from 90.8 in 2Q2023. Hence, we expect lower private consumption in 2024F on the back of softening consumer sentiments.

• Nov TIV dropped 4% MoM to 71,906 units. Even so, the sector’s monthly performance is still relatively robust as it hit 70k mark for the third time. The slight dip in TIV was dragged by weaker commercial vehicle sales, which declined by 10% MoM, while the passenger segment inched downwards by 3% MoM. On a YoY basis, however, TIV increased by 12% in November, underpinned by growth in most models. Due to the strong sales in November 2023, the TIV sales of 715,849 units in 11M2023 have already exceeded our 2023F forecast of 710,000 units. We expect vehicle sales to end on a high note in 2023, with strong chances of breaking the 2022 record of 720k units. The healthy momentum in vehicle sales in 4Q2023 is envisaged to be supported by year-end sales and discounts. For Perodua, we project lower 2024F sales of 285k units from 320k units in 2023F. However, Perodua’s affordable models will continue to be compelling to domestic purchasers and contribute the largest segment of industry TIV.

• Backlog orders beginning to level out with gradual fulfilment of deliveries. The 2023F TIV to is expected to surpass record levels given the strong existing order backlogs built up earlier. Based on our channel checks, as of December 2023, Perodua’s order backlog has declined by 30% to 140k from 200k recorded earlier this year. The recent pick-up in vehicle production in recent months suggests that backlog order growth has begun to level out and demonstrates early signs of abating. This is expected to translate to an expected sales slowdown in 1H2024.

• Expect lower new launches in 1H2024. In comparison to the various attractive models introduced in 2H2023, we expect lower new model launches in 1H2024. In view of this, we expect that TIV will likely not match the level recorded in 2023. For Perodua, its D6BB B-segment SUV is anticipated to be launched in mid-2024 whereas the next-gen Perodua Bezza will likely debut in 1H2025. If the D6BB model is priced competitively, we foresee a strong sales performance amidst stiff competition in Malaysia’s SUV market segment. This is due to Perodua’s continuously strong 10M2023 market share of 45.5% (+2.5% YoY). Meanwhile, Mazda has yet to announce its new CX-60 launch but has recently launched its 2024 facelifted version for CX-3 and Mazda 2 models. Also, the facelifted CX-5 model will be launched in end of January 2024, which is the key volume driver for Mazda. For Kia, the all-new Sportage and Caren could be in the pipeline as well.

• Mixed impact from currency headwinds on stocks under coverage. By end-2024F, our in-house economist projects a stronger MYR against the USD and a continuous JPY uptrend, closing at USD: RM4.50 and 100JPY: RM3.38 (vs. USD: RM4.65 and 100JPY: RM3.18 in end-2023F). The anticipated stronger JPY comeback after remaining sluggish in 2023 will have a minimal negative impact on Bermaz Auto given its limited exposure to JPY-denominated CBU imports. In contrast, the stronger MYR against USD will provide support to Tan Chong with its high cost exposure to the dollar. Meanwhile, MBM Resources has low exposure to foreign exchange fluctuations as Perodua has relatively higher local content at 90%-95% of total costs.

• Mildly positive on EV market expansion. Malaysian Automotive Association (MAA) show that electric vehicles (EV) TIV penetration stood at 1% for BEV sales and 3% for Hybrid EV in 9M2023. For 2024F, we expect EV sales to increase with a slightly higher penetration rate of 1.7%. EV progress in moving the TIV needle is still marginal given that Malaysia remains in the early transition stage. Although various policies and attractive incentives introduced reflect the government’s commitment in improving Malaysia’s EV readiness, we opine that low public charging infrastructures will still be a challenge for a significant increase in EV adoption.

Source: AmInvest Research - 12 Jan 2024