• In May 2024, Total Industry Volume (TIV) rose by 18.4% MoM to 68,665 units due to increase in all segments. The growth mainly by increasing from national car sales which maintain its dominant market share of 66%.

• On YoY basis, TIV rose by 8.7%. This led to an elevated YTD24 numbers at 328,901 units which was 8.3% higher than 303,575 units in May 2023. Nonetheless, we anticipate that subsidy rationalisation and tax reform measures by the government to have a negative impact on TIV numbers, especially in 2H24 onwards.

• To encourage EV adoption in Malaysia, the government introduced a new structured road tax discount of over 40-90% for EVs from the previous proposed structure, effective January 2026. This measure, along with periodic reviews every five years, aims to balance revenue generation while promoting eco-friendly transportation.

• Maintain Neutral on Automotive sector as we expect TIV to normalise to 650k units in 2024. We have a BUY call on BAuto (TP: RM2.80) and SELL call for MBMR (TP: RM4.28).

TIV rose 18.4% MoM. In May 2024, the TIV rose by 18.4% MoM to 68,665 units (Apr 2024: 57,991 units) was mainly attributed to the national car segment increasing by 20% MoM to 45,381 units (Apr 2024: 37,817 units). Similarly, the commercial vehicle rose by 22.5% MoM to 5,803 units (Apr 2024: 4,738 units). This was due to a significant improvement in production line output by 30% MoM to 74,174 units (April 2024: 56,895 units). Besides that, longer working month without public holiday or festival seasons also partially contributed to higher TIV number. On YoY basis, TIV rose by 8.7%, that leading YTD24 TIV to remain elevated at 328,901 units (YTD23: 303,575 unit).

National car sales. Sales recovered reaching to 45,381 units, with a 19.7% increase compared to last month (April 2024: 37,817 units). The main contributor to this increase is Perodua’s sales, which rose by 23.8% MoM to 33,268 units, supported by backlog orders that remains at 100k units. Among the favoured models are the Bezza, Myvi, Alza, Axia, and Ativa. Meanwhile, Proton’s sales increased by 10.5% MoM driven mainly by high demand for Proton Saga, followed by the S70, X50, Persona, X70, Iriz, and X90. Overall, the segment maintains a dominant market share of 66.1% with contribution of 48.4% from Perodua and 17.5% from Proton.

Non-national marques. The non-national segment increased by 16% MoM to 23,384 units compared to 20,174 units previously, representing a market share of 34.1%. Within this segment, Honda was the primary contributor, with sales volume increasing by 34% MoM to 6,374 units, though experiencing a 2% YoY decline (May 2023: 6,502 units). This is followed by Toyota that staged an increase of 15% MoM and 5% YoY increase to 8,281 units in May 2024 (May 2023: 7,875 units) alongside backlog orders totaling 23k units. Mazda's sales volume increased by 6% MoM to 1,368 units in May 2024 but declined by 23% YoY (May 2023: 1,775 units). Meanwhile, BAuto’s backlog as of May 2024 shows a decline, with 1,850 units for Mazda and 150 units for Kia. Chery experienced a MoM decline of 47% to 643 units compared to April 2024 (1,212 units), making it the next contributor.

Hybrid & Electric Vehicle (EV). In Malaysia, efforts to accelerate EV adoption include government incentives such as extended tax exemptions for CKD units until 2027 and CBU units until 2025, aimed at reducing costs and expanding access to environmentally friendly transportation options. In addition to corporate incentives, homeowners can get a RM2,500 tax relief for installing EV charging ports at home, making it easier to own an EV by improving infrastructure. Moreover, as of April 2024 Malaysia has 2,288 public charging points (AC: 1,785 units, DC: 503 units) and aim to expand to 10,000 by 2025. Achieving this ambitious goal requires the installation of approximately 379 AC and 27 DC charging points monthly.

The government has recently announced a new road tax structure for EV which will be effective beginning 2026. To recap, the government has previously exempted EV from road tax which is effective from 1st Jan 2022 until the end of 2025. Under the previous proposed structure, EVs with output up to 80kW were charged a flat rate of either RM20, RM44, RM56, and RM72 based on the grouped motor output power bands (refer to Table 1). Above 80kW, there are five power bands with differing base and accompanying progressive rates, calculated per 0.05kW above the base power output of the band (refer to Table 2).

However, for new EV road tax structure, it features an initial range from 0.01kW to 100kW with the minimum yearly band set at RM20, and each 9.9kW block increment charged an additional RM10 (refer to Table 3). Beyond 100kW, a similar structure applied with increments of 9.9kW but in difference increment each band. For output above 10,000kW, a flat rate of RM20,000 is imposed. Effectively, we estimate this will reduce EV road tax fees by 40-90% depending on the model (refer to Table 4 for the illustration).

At this juncture, it is important to note that there have been no changes to the other incentives that the government has provided, which include exemptions or reductions in excise duty, import duty, and sales tax on EVs. These incentives remain in place to support the adoption and affordability of EVs, ensuring that consumers continue to benefit from reduced overall costs when purchasing electric vehicles, thereby promoting a more sustainable and environmentally friendly mode of transportation.

Maintain NEUTRAL. Our NEUTRAL recommendation for the sector remains unchanged, primarily due to the anticipated normalisation of TIV in 2024 to 650k units that implies a 19% YoY decline. This projection was underpinned by: i) the launch of the new Perodua model has been postponed to next year, indicating that no new model will be released this year, which is significant as Perodua is the largest contributor to TIV numbers, ii) reduction in consumer confidence stemming from the rise in Sale and Service Tax (SST) to 8%, iii) the impending introduction of a luxury tax ranging from 5% to 10%, and iv) expected rationalisation of subsidies in petrol prices estimated in 2H24. However, there is an upside risk to our sector recommendation due to the strong labour participation rate and increasing salaries for civil servants, which have the potential to sustain buying interest in car ownership. At this juncture, we have a BUY call on BAuto (TP: RM2.80) and SELL call on MBMR (TP: RM4.28).
 

Source: BIMB Securities Research - 27 Jun 2024