MAA reported a strong Jul TIV of 57.6k units (+13.2% YoY; +28.8% MoM) mainly driven by full month effect of SST exemptions (implemented since mid-Jun). However, YTD TIV still dropped -33.2% YoY to 231.8k units, affected by Covid-19 during the earlier of the year. We expect continued strong TIV for the remaining months of the year, mainly driven by lower car prices by 2-7% during SST exemptions until 31 Dec. Our 2020 TIV expectation is maintained at 492.0k units (-18.6% YoY). We reaffirm our OVERWEIGHT call on the automotive sector with a selective stock approach in view of the recovery in 2H20. Top picks are DRB (TP: RM2.52); MBMR (BUY; TP: RM5.00) and Sime Darby (BUY; TP: RM2.55).

Malaysian Automotive Association (MAA) reported a strong Jul 2020 TIV at 57.6k units (+13.2 YoY; +28.8% MoM), mainly driven by full month effect of implementation of SST exemptions (since 15 Jun). MAA expects similar strong TIV for Aug 2020. However, TIV was still down -33.2% YTD to 231.8k units, mainly due to MCO and deteriorated consumer sentiment during 1H20. With the introduction of SST exemptions (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 the eased MCO period and government’s stimulus plan.

As we expect stronger 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 recovery 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 no data was provided for the following: 1) Monthly sales for Mercedes (passenger cars) from April to July 2020; 2) Monthly sales for BMW and Mini from April to July 2020. Nevertheless, 2Q20 was provided for BMW at 638 units and Mini at 55 units, which we believe most of the sales were registered in Jun 2020. 3) Monthly sales for Scania for July 2020.

Perodua (UMW and MBMR) sales continued to expand to 23.2k units in Jul (+16.5% YoY; +9.2% MoM) driven by full month effect of SST exemptions. The group achieved 97.4k units YTD, a drop of -31.3% (in line with the industry of -33.2%) while maintaining its top position with 42.0% market share. Despite the highly anticipated D55L SUV model only to be launched in 1Q21, Perodua is confident of its sales volume for the remaining months of the year due to the strong demand for its existing model line-ups. It plans to increase its monthly production volume to 25k units (vs. 20k units previously) for Aug-Dec 2020. Management is targeting 210k unit sales in 2020.

Proton (DRB) experienced a stronger sales growth at +53.9% YoY and +37.3% MoM to a record 13.2k units (highest since Sep 2013), driven by strong demand for its X70 SUV, Saga and Persona. YTD, the group outperformed the market with only a slight drop of -3.5% YoY to 50.3k units, a market share of 21.7%. Management is targeting 100k unit sales in 2020. Upcoming new line up launch is the highly anticipated X50 CKD in 4Q20. On another positive note, Proton has just started its Saga CKD export program into Kenya, which has a population of 51m.

Honda (DRB) sales rebounded +80.6% MoM to 6.0k units, but still dropped -20.4% YoY. Despite the disappointing YTD sales of 23.1k units (-55.4% YoY) with 10.0% market share, we expect Honda to overtake Toyota in 2H20 with strong sales recovery following the recent introduction of BR-V facelift and CR-V facelift as well as upcoming all new City.

Toyota (UMW) registered sales volume of 7.4k units (+31.3% YoY; +70.9% MoM) and 25.6k units YTD (-30.5% YoY), slightly outperformed industry trends. We expect Toyota to face stiff competition for the remaining 2020 following the expected upcoming attractive launches by close competitors.

Nissan (TCM) sales remained disappointing at only 1.6k units (-20.5% YoY; +55.4% MoM), with YTD sales at 6.0k units (-51.6% 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) sales rebounded back to a high of 1.2k units (+20.0% YoY; +20.0% MoM), driven by consumers taking advantage of the SST exemptions. Nevertheless, YTD sales were still down by -27.5% to 5.4k units, but outperformed the market trend. Management indicated strong demand for its products due to government’s stimulus plan and combined with its attractive 6+6 program for an extended 6 years free warranty and free maintenance.

Source: Hong Leong Investment Bank Research - 25 Aug 2020