• 2024 Performance Remains Elevated: Is This the New Norm for TIV? The Malaysian automotive sector recorded a steady performance in 11M24, with TIV reaching 731,534 units, reflecting a modest 1.4% YoY growth compared to 721,392 units in 11M23. This marks a significant structural shift, when compared against the pre-COVID-19 period TIV average of approximately 600k units annually. While the extension of the SST exemption bolstered post-pandemic demand through 2023, the sustained momentum into 11M24 suggests this elevated TIV levels could signify a new normal for the sector. Key factors driving this demand include a record-high labor force participation rate (LFPR) of 70.5%, reflecting a strong and expanding workforce that supports consumer purchasing power, particularly among new entrants to the job market. This high LFPR has enhanced household incomes, improved vehicle affordability and sustaining demand for new cars. Additionally, robust order backlogs from key manufacturers like Perodua (90k units in 11M24, compared to 50k–60k units during pre-COVID) demonstrate a significant increase in consumer demand.

• 2025 TIV Outlook: Maintain Our Forecast at 810k Units. Looking ahead, we maintain our TIV forecast for 2025 at 810k units, driven by historical trends showing that TIV has historically grown following civil servant salary increments. For instance, TIV grew by 7% YoY in 2008 and 5% YoY in 2012, following civil servant salary hikes. These salary increments had a significant impact on disposable income, improving vehicle affordability and boosting automotive demand. The upcoming civil servant salary adjustments, set to be rolled out in two phases (Phase 1: 1st Dec 2024 and Phase 2: 1st Jan 2026), are expected to have a similar impact. Phase 1 should help sustain demand in 2025, while Phase 2 is anticipated to extend the growth trajectory into 2026. Furthermore, the introduction of higher minimum wages in 2025 is also expected to further stimulate vehicle purchases, particularly within the B40 and M40 income groups. Combined with rising consumer confidence, these factors are likely to create a favourable environment for sustained TIV growth. Although the growth will be gradual as salary adjustments take time to fully translate into enhanced affordability, the rising incomes, supportive government policies, and positive market sentiment position 2025 as a pivotal year for the automotive sector. This could mark the beginning of a new TIV benchmark, aligning with Malaysia’s broader vision of becoming a high-income economy.

• RON95 Subsidy Rationalization Could Drive Shifts Towards Electric Vehicles (EVs) and Fuel-Efficient Vehicles. We anticipate that high-income earners from T15 households may take this opportunity to shift from traditional Internal Combustion Engine (ICE) vehicles to EVs, as the rising fuel costs make EVs, with their lower long-term operating costs, a more attractive option. This shift is further supported by government incentives for EVs, such as tax exemptions and rebates, and the increasing emphasis on environmental sustainability. Meanwhile, the M40 and lower-income groups are likely to choose more fuel-efficient cars, like the Perodua Bezza and Axia, to cope with higher fuel costs. These cars offer a more affordable option for consumers while still fulfilling their transport needs. As fuel prices rise, the availability of these fuel-efficient models will help maintain demand, supporting steady growth in TIV. This trend points to a shift towards more practical and affordable vehicle choices, which will likely keep the automotive sector on a steady upward path.

• Positive Outlook for Malaysia’s EV Market. The outlook for Malaysia's EV market remains positive heading into 2025. As of Nov 2024, the Road Transport Department Malaysia (JPJ) reported 19,208 registered EV units, accounting for 2.5% of total vehicle registrations. While this figure is significantly below the government’s 20% target by 2030, the 10% MoM increase in Nov 2024 registrations to 1,805 units indicates positive momentum in the segment.
  
  Rising fuel prices are enhancing the cost appeal of EVs, particularly among middle-income (M40) and lower-income (B40) groups. Market dynamics are expected to shift further with the entry of Proton and Perodua into the EV space. Proton, in collaboration with Geely, launched its first EV, the E-MAS7, in Dec 2024, while Perodua plans to introduce affordable EV models, targeting price-sensitive consumers and driving mass-market penetration by the end of 2025.
  
  Despite these promising developments, structural challenges persist. The limited availability of charging infrastructure, with only 3,354 public charging points, and high upfront costs remain significant barriers to widespread EV adoption. However, continued government intervention, including tax incentives, rebates, and grants for infrastructure development, will be essential in addressing these issues. Budget 2025 is expected to introduce additional EV incentives, such as expanded CKD EV tax exemptions, further encouraging consumer adoption.
  
  Considering these factors, Malaysia’s EV market share is projected to grow from 2.5% to approximately 3.5% by the end of 2025. This growth highlights the nation’s steady transition toward electric mobility, supported by favorable government policies and increasing consumer demand.
   
• More Attractive Models to Be Launched in 2025. The automotive industry in 2025 is set to unveil a range of exciting new models that cater to shifting consumer preferences and technological advancements. Perodua strengthens its lineup with the highly anticipated EMO BEV, Malaysia’s first fully electric vehicle, offering a 400 km range at an accessible price point, along with the Nexis, a premium SUV designed to compete with rivals through its advanced features and modern design. Proton introduces the X50 Facelift, offering a refreshed version of its popular SUV, and the All-New Proton Saga, reinventing the iconic sedan with modern updates. Proton also continues its sustainability efforts with the eMAS PHEV, a plug-in hybrid designed for eco-conscious buyers. Honda elevates its offerings with the Civic Facelift, enhancing its segment-leading design and technology. Meanwhile, Citroën returns with the bold and stylish Basalt, showcasing French design and engineering, while the Jaecoo J7 PHEV enters the market as an affordable plug-in hybrid aimed at environmentally conscious consumers.
   
• Maintain OVERWEIGHT on Automotive sector. We reaffirm our OVERWEIGHT stance supported by resilient domestic demand driven by i) the upcoming civil servant salary increment in Dec 2024, and ii) introduction of higher minimum wages in 2025 is expected to further stimulate vehicle purchases. Nonetheless, downside risks remain, including (i) rising interest rates, which could increase vehicle financing costs and reduce consumer demand, and (ii) ongoing global supply chain disruptions. At this juncture, we maintain a BUY call on SIME Darby (TP: RM2.60) and HOLD for MBMR (TP: RM5.50) and BAuto (TP: RM1.46).

Source: BIMB Securities Research - 8 Jan 2025