As expected, MAA reported Apr TIV only at minimal of 141 units (-99.7% YoY; - 99.3% MoM), bringing YTD to 106.6k units (-44.8% YoY) due to full implementation of MCO during the month. With the extended conditional MCO (until 9 Jun) 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 still 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 Apr 2020 TIV at 141 units, which dropped significantly by 99.7 YoY and 99.3% MoM, following the implementation of MCO (Movement Control Order) effective since 18 Mar 2020 and temporary closing of JPJ offices (JPJ has started to resume full services effective 18 May). YTD, TIV dropped by 44.8% YoY to 106.6k units. The 141 units recorded during the month was purchases done prior to MCO implementation and registration was done online, but no physical delivery of the vehicles yet. With the extended conditional MCO (until 9 Jun 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). Covid-19 and MCO measures will further affect consumer income and consumer sentiment for the year.

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: RM4.50) 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: RM2.25) for its strong balance sheet and potential leverage to the China market rebound.

Source: Hong Leong Investment Bank Research - 27 May 2020