Despite May-YTD TIV fell 32.9% YoY (affected by Covid-19), we expect 2H20 to rebound strongly following the implementation of SST exemptions from 15 Jun to 31 Dec 2020. Consumers are expected to take advantage of the reduced new car prices. OEMs with exciting new models include Proton (DRB), Perodua (MBMR & UMW), Honda (DRB), Nissan (TCM) and Mitsubishi (DRB). We forecast 2020 TIV at 492k units. Maintain OVERWEIGHT on the sector with BUY recommendations on 1) DRB (TP: RM2.52); 2) MBMR (TP: RM5.00); 3) Pecca (TP: RM1.28); and 4) Sime (TP: RM2.55).

Jan-May TIV… dropped 32.9% YoY to 129.5k units, affected by Covid-19 on the implementation of MCO (Movement Control Order), slowdown of economy and deteriorated consumer sentiment. National OEMs continued to lead the market with Perodua capturing 40.9% market share and Proton 21.2%. Within the foreign OEMs, both Toyota and Honda lead with 10.7% market share respectively, followed by Nissan 2.6% and Mazda 2.5%. Honda was also partly affected by regulatory issues during the period.

2H20 TIV… is expected to rebound strongly following the introduction of SST exemptions on new passenger cars from 15 Jun to 31 Dec 2020. Consumers are expected to take advantage of the lower new car prices, which have reduced by 2-7% (paultan.org). OEMs with high inventory level and unaffected supply disruption will likely to outperform. In addition, attractive new model launches by OEMs in 2020 will continue to grab higher market share. OEMs with exciting new models include Proton (DRB) – X70 CKD & X50 CKD, Perodua (UMW & MBM) – Bezza & D55L SUV, Honda (DRB) – City, CR-V, Accord & Civic, Nissan (TCM) – Almera, and Mitsubishi (DRB) – Xpander. We have forecasted TIV for 2020 at 492k units.

RM depreciation. We expect RM/USD to average 4.23-4.28 in 2020 as compared to 4.14 in 2019, while RM/JPY to depreciate to average 3,900-4,000 level in 2020 (Bloomberg forecast) from 3,800 in 2019. Weakened RM will increase the effective input costs for imported CBU cars, CKD packs and raw materials, and subsequently affect OEMs’ margins. Major OEMs that have major exposure towards USD include Toyota (UMW) and Nissan (TCM), while JPY include Honda (DRB) and Mazda (BAuto). OEMs with new launches are in good position to price in the higher cost, in order to protect their margins.

Maintain OVERWEIGHT on a recovery play as we expect SST exemption to aid TIV revival in 2H20. Our BUY recommendations include: 1) DRB (TP: RM2.52); 2) MBMR (TP: RM5.00); 3) Pecca (TP: RM1.28); and 4) Sime (TP: RM2.55)

Source: Hong Leong Investment Bank Research - 14 Jul 2020