MAA reported another strong TIV of 56.7k units (+5.2% YoY; +0.4% MoM) in Oct 2020, driven by SST exemptions. However, YTD TIV still dropped -20.0% YoY to 397.7k units, affected by Covid-19 during the earlier of the year. Despite the current implementation of CMCO and EMCO in several areas affecting new car deliveries in the near term, we still expect pent-up deliveries by year end, 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 Pecca (BUY: TP: RM1.75); MBMR (BUY; TP: RM5.00); DRB (TP: RM2.52) and Sime Darby (BUY; TP: RM2.68).

Malaysian Automotive Association (MAA) continued to report strong TIV in the month of Oct 2020 at 56.7k units (+5.2 YoY; +0.4% MoM), driven mainly by SST exemptions. Nevertheless, TIV was still down by -20.0% YTD to 397.7k units (there are some data still not yet provided by BMW, Mini, Mercedes and Scania, which we estimate to amount to c.11k units), mainly affected by 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 continued recovery of TIV for the remaining months of 2020. We note that national marques Perodua and Proton have continued to outshine non-nationals. With the current implementation of CMCO and EMCO in selected areas, some tapering could happen in the near term. We maintain our 2020 TIV forecast at 492.0k units (-18.6% YoY).

With the broader recovery in demand post-MCO (due to SST exemptions), we maintain our OVERWEIGHT rating on the sector with a stock selective approach with 4 BUY and 3 HOLD recommendations. Our top picks include Pecca (BUY; TP: RM1.75) and MBMR (BUY; TP: RM5.00), leveraging onto national marques (record 3Q2020 sales) with sustainable strong dividend yields. We also like DRB (BUY; TP: RM2.52) on the turnaround of Proton and Sime Darby (BUY; TP: RM2.68) 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 October 2020;

2) Monthly sales for BMW and Mini from April to October 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 June 2020.

3) Monthly Sales for Scania for July-October 2020.

Perodua (UMW and MBMR) achieved its second consecutive record breaking monthly sales in Oct at 26.8k units (+17.7% YoY; +7.2% MoM), driven by strong demand during the SST exemption period. The group achieved 171.9k units YTD, a drop of -14.7% (outperformed industry of -20.0%) while maintaining its top position with 43.2% market share. Perodua is likely to outperform its sales target of 210k unit sales in 2020 (a drop of - 15.0% YoY). Management has guided the launching of new SUV D55L (Kembara) to be in early-2021, along with the expected Myvi facelift in later part of the year.

Proton (DRB) recorded yet another strong sales month in Oct at 11.0k units (+16.0% YoY; -7.2% MoM), driven by strong demand for its X70 SUV, Saga and Persona. YTD, the group outperformed the market with a growth of +6.5% YoY to 84.6k units, holding a market share of 21.3%. Similarly, Proton is likely to outperform its 100k unit sales target in 2020, given the strong booking orders for the newly launched X50 SUV model in Oct.

Honda (DRB) sales declined in Oct with sales of 5.5k units (-14.4% YoY; -7.2% MoM) mainly due to phasing out of its old City model during the month as well as consumer holding back prior to the new City model. YTD sales declined 43.9% to 40.1k units with 10.1% market share, mainly affected by implementation of MCO during earlier of the year. We expect Honda to overtake Toyota in coming months following the recent introduction of the all new City in Oct at attractive pricing of RM74-87k. The model has received over 9k units of bookings and management is targeting monthly sales of 3k units.

Toyota (UMW) registered sales volume of 6.4k units (-1.4% YoY; +15.8% MoM). YTD sales dropped 20.0% to 43.2k units with 10.9% market share, relatively in line with industry trends. In view of the threat of attractive new launches by close competitors, Toyota is also launching Vios facelift and Yaris facelift in the coming month, as both are already open for bookings.

Nissan (TCM) sales remained disappointing at only 1.6k units (-4.8% YoY; -5.5% MoM), with YTD sales at 10.9k units (-37.1% YoY), due to its lack of attractive model launches during the period. Nevertheless, Nissan has just recently launched its new Almera in November while the new Kicks and Sylphy may only come post 2020.

Mazda (BAuto) sales remained high at 1.3k units (+30.2% YoY; +8.0% MoM), driven by consumers taking advantage of the SST exemptions. Nevertheless, YTD sales were still down by -8.1% to 9.1k units, but outperformed the market trend. Upcoming attractive model for 2021 include CX-30 CKD, MX-30 and BT-50.

Source: Hong Leong Investment Bank Research - 1 Dec 2020