Malaysia government has allowed for an extension of the existing SST exemptions to 30 Jun 2021 (from 31 Dec 2020). The measure will benefit the overall automotive sector, as many OEMs are unable to fulfil the strong sales order by end Dec 2020, due to limited stocks and supply disruption/constraints. Hence, TIV will remain strong into 1H21, driven by the on-going lower effective passenger car prices. Maintain OVERWEIGHT on the sector with BUY on DRB (BUY; TP: RM2.45), MBMR (BUY; TP: RM5.00), Pecca (BUY; TP: RM1.68) and Sime Darby (BUY; TP: RM2.68)

NEWSBREAK

According to Paultan.org, the government has announced via a memo issued to the Malaysian Automotive Association (MAA) and Malaysian Association of Malay Vehicle Importers and Traders (PEKEMA) that there will an extension to the new vehicle sales tax (SST) exemption period to 30 Jun 2021 (from existing expiry 31 Dec 2020). According to the memo, the percentage of sales tax exemption remains the same, with 100% for locally-assembled passenger cars (CKD) and 50% for fully-imported passenger cars (CBU). The SST exemptions has effectively reduced car prices by 2- 7% (paultan.org)

HLIB’s VIEW

Positive news to end the year. We are positive on the announcement, as the measures will continue to spur TIV into 1H21. Currently, many of the OEMs are unable to fulfil the strong sales order by end Dec 2020 due to inability to secure enough stocks (limited inventory) as well as supply disruption/constraints (i.e. Proton, Perodua, Honda etc). Furthermore, the new model launches (i.e. Perodua and Toyota) in early 2021 will also be able to enjoy the benefit of the SST exemptions.

We expect the largest beneficiaries of the SST exemptions to be Proton (DRB), Perodua (UMW & MBMR), Honda (DRB), Toyota (UMW) and Mitsubishi (DRB).

We maintain OVERWEIGHT on the sector with BUY recommendations on DRB (BUY; TP: RM2.45), MBMR (BUY; TP: RM5.00) and Pecca (BUY; TP: RM1.68), leveraging onto national marques, as well as Sime Darby (BUY; TP: RM2.55) for its strong balance sheet and potential leverage to the China market rebound.

Source: Hong Leong Investment Bank Research - 5 Jan 2021