MAA reported Mar TIV at 21.3k units (-61.1% YoY; -48.8% MoM) and YTD at 106.4k units (-25.6% YoY) mainly affected by weakened consumer sentiment and implementation of MCO during the month. We have imputed BMW, Mini, Mercedes and Scania sales for fair comparison purpose. Important to note that Honda reclaimed back its top position within foreign segment (from Toyota) post sorting out its regulatory costing issues while Mazda remained above Nissan for second consecutive month. With the extended MCO and deteriorating consumer sentiment, we do not discount further downside risk to our 2020 TIV expectation of 555.9k units (-8.0% YoY). Nevertheless, we maintain OVERWEIGHT on automotive sector on selective stock approach in view of potential recovery in 2021, with top picks of MBMR (BUY; TP: RM4.80), Pecca (BUY; TP: RM1.05) and Sime Darby (BUY; TP: RM2.00).

Malaysian Automotive Association (MAA) reported Mar 2020 TIV at 21.3k units (adjusted), which dropped significantly by 61.1% YoY and 48.8% MoM, following concerns on Covid-19 and subsequent implementation of MCO (Movement Control Order) effective 18 Mar 2020. YTD, TIV dropped by 25.6% YoY to 106.4k units. Note that we have adjusted the monthly TIV to include BMW, Mini, Mercedes and Scania as these marques will only provide quarterly statistics in 2020 onwards. With the extended MCO (until 12 May 2020) and continued social distancing measures post MCO, we expect further downside risks towards our 2020 TIV forecast of 555.9k units (-8.0% YoY), affected by the deteriorating consumer income and consumer sentiment.

As we expect some normalisation of TIV towards end 2020, we maintain our OVERWEIGHT rating on the sector with a stock selective approach with 4 BUY, 2 HOLD and 1 SELL recommendations. Our top picks include MBMR (BUY; TP: RM4.80) and Pecca (BUY; TP: RM1.05) for their high net cash position and leverage to national marques during recovering phase in 2021 as well as Sime Darby (BUY; TP: RM2.00) for its strong balance sheet and potential leverage to the China market rebound.

Perodua (UMW and MBMR) managed to register sales volume of 8.6k units in Mar (-63.1% YoY; -54.5% MoM) while its market share sustained at a high of 40.3%. The group achieved 45k units YTD, a drop of 25.9%, in line with the industry. Perodua is targeting a flattish sales of 240k units for 2020, banking on recent launches of Axia facelift (Sep 2019) and Bezza facelift (Jan 2020), as well as upcoming D55L SUV unit (2H20).

Proton (DRB) was not spared from the brunt of MCO, (-46.6% YoY, - 67.1% MoM) with market share declined to 15.4% from previous Feb month high of 24.0%. YTD, the group was the only major marque recording positive growth of +19.0% YoY to 21.8k units, outperformed the industry. Management is targeting 130k unit sales in 2020. Upcoming new line up launch is the highly anticipated X50 CKD in 2H20.

Honda (DRB) reclaimed back its top position within the foreign segment in Mar by registering a recovery of +86.5% MoM to 3.3k units after sorting out regulatory costing issue with the government (new excise duty calculations), which has dragged Feb sales. However, sales still dropped 62.2% YoY and 50% YTD (to 11.1k units), worse than the industry. Honda is expecting greater sales in 2H20 with upcoming BR-V facelift, new City and Jazz to mitigate the negative impact in 1H20.

Toyota (UMW) registered sales volume of 2.8k units (-52.4% YoY; -30.3% MoM) in Mar and 10.4k units YTD (-23.8% YoY), slightly outperforming industry trend. We expect Toyota to face stiff competition for the remaining 2020 following the expected attractive launches by close competitors during the year.

Nissan (TCM) continued to record disappointing Mar sales at only 0.3k units (-83.9% YoY; -68.3% MoM), with YTD sales at 2.7k units (-46.8% YoY), due to its lack of attractive new model launches. Management has indicated upcoming new Almera is due to launch in 2H20 while the new Kicks and Sylphy may only come post 2020.

Mazda (BAuto) recorded sales at 0.5k units (-48.4% YoY; -52.7% MoM) in Mar, remained above Nissan. YTD, Mazda sales was 2.7k units, a drop of 17.8% YoY, outperforming the industry. Upcoming expected new launch is MX-30 SUV in 2H20.

Source: Hong Leong Investment Bank Research - 30 Apr 2020