MAA reported a rebound in Jun TIV to 44.7k units (+94.7% MoM; +5.1% YoY) mainly driven by SST exemptions since mid-Jun. However, YTD TIV still dropped -41.2% YoY to 172.2k units, affected by Covid-19 during earlier of the year. Nevertheless, we expect a rebound in TIV in 2H20, mainly driven by lower car prices by 2-7% during SST exemptions until 31 Dec. We maintain our 2020 TIV expectation to 492.0k units (-18.6% YoY), after accounting for the lengthened MCO period (albeit eased) and higher demand during SST exemption period. We maintain OVERWEIGHT on automotive sector on selective stock approach in view of the recovery in 2H20, with top picks of DRB (TP: RM2.52); MBMR (BUY; TP: RM5.00) and Sime Darby (BUY; TP: RM2.55).

Malaysian Automotive Association (MAA) reported Jun 2020 TIV which started to normalise at 44.7k units, rebounding +94.7% MoM (due to low base) and +5.1% YoY. This follows from the relaxation of MCO (to CMCO) from 4 May and implementation of SST exemptions since 15 Jun. However, TIV still dropped -41.2% YTD (to 172.2k units), affected by MCO and deteriorated consumer sentiment. With the introduction of SST exemption (car prices have reduced 2-7%; paultan.org) and PENJANA measures from 15 Jun to 31 Dec 2020, we expect a recovery in TIV for 2H20. We maintain our 2020 TIV forecast to 492.0k units (-18.6% YoY), after taking into account of the eased MCO period and government’s stimulus plan.

As we expect a rebound in TIV in 2H20, we maintain our OVERWEIGHT rating on the sector with a stock selective approach with 4 BUY and 3 HOLD recommendations. Our top picks include DRB (BUY; TP: RM2.52) and MBMR (BUY; TP: RM5.00), leveraging to national marques during the recovering phase in 2H20-2021 as well as Sime Darby (BUY; TP: RM2.55) for its strong balance sheet and potential leverage to the China market rebound.

Note that MAA was unable to provide TIV breakdown for Jun 2020 due to some unforeseen circumstances and only able to provide the total new car sales for the month. The following breakdown is based on respective disclosure from the companies and MAA’s Jan-Jun market review:

Perodua (UMW and MBMR) sales have normalised back to 21.3k units in Jun (+32.5% YoY; +169.5% MoM) while its market share sustained at a high of 47.5%. The group achieved 74.2k units YTD, a drop of -39.1%, in line with the industry. Perodua is cautiously optimistic for 2H20, banking on the SST exemptions. Upcoming attractive new launch include new SUV D55L (Kembara).

Proton (DRB) had a similar experience with a rebound in sales to 9.6k units (+26.4% YoY; +69.5% MoM), upholding its market share at 21.5%. YTD, the group outperformed the market with only a drop of -14.8% YoY to 37.1k units. Management is targeting 100k unit sales in 2020. Upcoming new line up launch is the highly anticipated X50 CKD in 2H20.

Honda (DRB) sales remained disappointing with only 3.3k units (-38.4% YoY; +23.9% MoM). YTD, sales dropped -61.3% to 17.1k units, worse than the industry. Honda is expecting greater sales in 2H20 with the introduction of BR-V facelift, CR-V facelift and new City to mitigate the negative impact in 1H20.

Toyota (UMW) registered sales volume of 4.3k units (-16.8% YoY; +26.9% MoM) and 18.2k units YTD (-41.7% YoY), underperforming industry trends. 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 sales at only 0.9k units (-41.0% YoY; +42.1% MoM), with YTD sales at 4.3k units (-58.9% 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.

Source: Hong Leong Investment Bank Research - 28 Jul 2020