Investment Highlights

• We maintain NEUTRAL rating on the automotive sector due to weaker auto sales prospects with a projection of 670k units (-6% YoY) in 2024F. The conservative outlook stems from normalisation of vehicle sales after SST exemption expiry and anticipated rollout of the government’s targeted subsidy mechanism, which could potentially accelerate inflation while negatively impacting consumers’ disposable income and private consumption. Positive sentiments for this year may be further subdued by the lack of new model launches as compared to 2023. In view of this, we expect that 2024F total industry volume (TIV) will likely not match the level recorded last year. Nonetheless, there were a few recent model launches including facelifted Mazda 2, BYD Atto 3 and 2024 Honda CRV. Despite the lower anticipated trajectory, the sector will be supported by a resilient labour market with signals of recovery as the latest unemployment rate remained at the post-pandemic low of 3.4% in October 2023.

• Malaysian Automotive Association’s (MAA) December TIV increased by 7% MoM to 78,398 units. The growth in TIV was supported by higher commercial vehicle sales, increasing by 12% MoM to 7,490 units, whereas the passenger segment expanded by 7% MoM to 70,908 units. Meanwhile, cumulative auto sales for 2023 was at an all-time high of 799,731 units, surging by 11% YoY from 721,177 units in 2022 which hit the 700k mark for 2 consecutive years. The recordbreaking sales was attributable to the better supply-chain environment, wide-range of new launches and tax-free vehicle bookings.
  
  Furthermore, new entrants to the battery electric vehicle (BEV) market succeeded in attracting customers and drawing in more sales. In 2023, based on YTD basis, BEV sales increased exponentially by 3.9x YoY to 10,159 units (2022: 2,631 units), representing 1.3% TIV penetration. Meanwhile, hybrid sales rose by 40% YoY to 28,055 units (2022: 19,988 units), representing 3.5% TIV penetration. For 2024F, we expect sales to trend upwards with a slightly higher penetration rate of 1.7% for BEV and 4.0% for hybrid. The EV market development will be underpinned by Malaysia’s favourable policies for electric vehicles (EV) and measures to attract foreign direct investment (FDI). Nonetheless, we opine that low public charging infrastructures will still be a challenge for a significant increase in EV adoption. As of January 2024, there are only 1.4k charging stations available nationwide, which lags behind the 10k target by 2025.
   
• Increase in Perodua’s year-to-date (YTD) market share to 41.5% (+2.3%-point YoY) with YTD sales of 330,325 units. The robust sales was slightly higher than its initial 2023 target of 325,000 units thanks to improved operational productivity and healthy demand for its vehicles. In FY2024F, we project lower Perodua sales of 285,000 units due to anticipated weaker demand as consumers may opt the ‘wait and see’ approach in view of the Daihatsu scandal, lasting at least until 1H2024.
   
• Toyota YTD market share inched downwards to 13.6% (-0.5%-point YoY) although YTD sales grew by 7% YoY to 108,107 units. The strong performance marks Toyota's highest sales recorded since 2012. Going forward, Toyota is anticipated to tap into the EV market with the introduction of new models with electrified (xEV) technologies.

• Honda’s YTD market share dropped to 10% (-1.2%-point YoY). Nonetheless, its monthly sales of 10,653 units remains robust (32% MoM, 38% YoY) thanks to its aggressive festive and seasonal promotions. Honda’s wide-range of new launches in 2023 such as 2024-CRV, WR-V and City models are expected to support sales prospects in 1H2024.

• Mazda recorded YTD TIV of 19,124 units (31% YoY) with slightly higher market share of 2.4% (+0.4%-point YoY). Bermaz Auto will launch its facelifted CX-5 by the end of this month, which is the key driver for Mazda. We anticipate an upward booking trend in view of the upcoming festive season, supporting the momentum of Mazda sales.

• Proton’s cumulative market share unchanged at 18.9%, registering 150,975 units of YTD TIV sales (+11% YoY). This performance is the highest in 12 years and marks the fifth consecutive year of growth as demand for Persona, Iriz, Exora and Saga models rebounded.

• Sub-par performance from Nissan. In December, Nissan vehicle sales deteriorated with only 809 units (-8% MoM, -19% YoY). Meanwhile, YTD sales declined by 27% YoY to 10,057units with a smaller cumulative market share of 1.3% (-0.6%- point).

• Sector top pick. We continue to like BAuto for its robust pipeline of new model rollouts and CKD expansions with a decent dividend yield at 7%.

Source: AmInvest Research - 19 Jan 2024