Despite Recent Implementation of FMCO (Jun 2021), We Expect TIV to Rebound in 2H21 With the Extended SST Exemption to Dec 2021. Consumers Are Expected to Take Advantage of the Reduced Car Prices. We Maintained Our TIV Assumptions for 2021 at 585.4k Units (+10.6% YoY). OEMs With Exciting New Models Include Proton (DRB), Perodua (MBMR & UMW), Honda (DRB), Nissan (TCM) and Mitsubishi (DRB). Current Chip Shortage Situation Is Expected to Improve in 2H21. Maintain OVERWEIGHT on the Sector With BUY Recommendations on 1) DRB (TP: RM2.78); 2) MBMR (TP: RM5.20); and 3) Sime (TP: RM2.68).

Jan-May 2021 TIV increased 89.1% YoY to 246.0k units, mainly driven by combinations of: 1) low base effect SPLY, on strict implementation of MCO1.0 (midMar to Apr 2020); and 2) booster shot of SST exemption measures since mid-June 2020. National OEMs continued to lead the market with Perodua capturing 39.1% market share and Proton 22.7%. Within the foreign OEMs, Toyota has led the market with 13.7% market share, followed by Honda with 10.2%, while Nissan and Mazda compete closely with 2.3% and 2.2% respectively.

SST exemption to balance off FMCO impact. Jun is expected to record close to zero TIV due to implementation of FMCO. On the brighter side, we expect a rebound in TIV in 2H21 following the newly extended SST exemptions on new passenger cars to 31 Dec (from 30 Jun). Consumers are expected to continue to take advantage of the lower new car prices, which have reduced by 2-7% (paultan.org). In addition, attractive new model launches by OEMs in since end-2020 will continue to grab higher market share. OEMs with exciting new models include Proton (DRB) – X50, Perodua (UMW & MBM) – Ativa, Honda (DRB) – City, Toyota (UMW) – Vios, Yaris & Corolla Cross, Nissan (TCM) – Almera & Navara facelift, and Mitsubishi (DRB) – Xpander. We have maintained TIV forecast for 2021 at 585.4k units (+10.6% YoY).

Global chip shortage has caused disruption to the supply chain of the automotive sector since earlier part of the year. OEMs are in talks with principals and various suppliers to secure enough inventories to fulfil the strong demand during SST exemption period. Hence, we expect the situation to improve in 2H21.

RM appreciation. We expect RM/USD to average 4.10 in 2H21 (vs. June’s 4.13, 4.10 in 1H21 and 4.20 in 2020), while RM/JPY to average 3,730 (Bloomberg) in 2H21 (vs. 3,805 in 1H21 and 3,936 in 2020). Strengthened RM will reduce the effective input costs for imported CBU cars, CKD packs and raw materials, and subsequently improving OEMs’ margins. Major OEMs that have major exposure towards USD include Toyota (UMW) and Nissan (TCM), while JPY include Honda (DRB) and Mazda (BAuto).

Maintain OVERWEIGHT as we expect SST exemption to aid TIV revival in 2H21. We have BUYs on: DRB (TP: RM2.78), MBMR (TP: RM5.20) and Sime (TP: RM2.68).

Source: Hong Leong Investment Bank Research - 8 Jul 2021