Overall Aug TIV showed +147.0% MoM rebound to 17.5k units, as government relaxed lockdown restrictions by mid-Aug. The -67.5% YoY drop was due to averagely only half month operation in Aug. YTD TIV registered a -4.8% drop to 273.7k units, due to longer strict lockdown days for current period. We expect TIV to rebound in coming months as OEMs ramp up production to cater for the strong demand prior expiry of SST exemption by end 2021. However, the situation remains fluid post SST exemption expiry by end 2021 (potentially extend into 2022) and constraint by global microchips supply shortage. We maintain our NEUTRAL sector call with top picks on MBMR (BUY; TP: RM4.80), DRB (BUY; TP: RM2.30) and Sime Darby (BUY; TP: RM2.68).

As expected, Malaysian Automotive Association (MAA) reported continued MoM recovery of +147.0% to 17.5k units in Aug 2021 TIV, following nationwide relaxation of movement restrictions by mid-Aug 2021. On YoY basis, it was a drop of -67.5%, mainly due being operational for only half a month and lack of inventory and production during the current month. YTD TIV still declined slightly by -4.8% YoY to 273.7k units, mainly due to strict lockdown measures implementation for Jun (starting) to mid-Aug 2021 period. We expect TIV to rebound strongly in coming months as OEMs ramp up production to meet the current order backlogs and the expected year-end sales prior to SST exemption expiring by end Dec 2021. Industry players are appealing to the government to further extend SST exemption measures to June 2022. However, the industry volume growth may be constraint by the global microchips supply shortage in the near term. We are maintaining our TIV forecast of 480k units for 2021.

Despite the expected strong TIV recovery towards 4QCY21, we still maintain NEUTRAL on our sector recommendation, as we expect TIV to drop post SST exemption expiry by end CY21 (potential extension into CY22) with uncertainty of global microchip supply issue. Nevertheless, we advise investors to accumulate MBMR (BUY; TP: RM4.80) and DRB (BUY; TP: RM2.30), as we expect national OEMs to triumph in the longer term with potential growth from new export markets. We also like Sime Darby (BUY; TP: RM2.68) for its strong balance sheet and leverage to the China market rebound.

Perodua (UMW and MBMR) sales recorded 7.0k sales (+9.7x MoM; -69.1% YoY) in line with market trend. YTD sales was 104.9k units (-12.5% YoY). Perodua has cut its sales target for 2021 to 214k units (from 240k units) following recent production halt for more than 2 months. The largest national OEM has secured enough supply to meet its existing back-log orders within the year. We expect delay in the launching of Myvi facelift into 2022.

Proton (DRB) also experienced a similar fate with 2.7k units (+44.0% MoM; -75.9% YoY). YTD sales was relatively flattish -1.1% YoY at 61.0k units. Management revealed total sales YTD including export market was 62.6k units (+1.6% YoY) as management ramped up exports in line with Proton’s 10-year turnaround plan in order to diversify of out of the Malaysian market. The localisation of CKD Saga model in Pakistan is now expected to commence in Oct 2021.

Toyota (UMW) registered 2.5k units in Aug (+72.2% MoM; -56.3% YoY) and 37.6k units YTD (+20.2% YoY). Similar to Perodua, Toyota has secured enough inventory to meet the order backlog prior to year end. Toyota is also expected to introduce a CKD hybrid model prior before year-end, expected to be Cross hybrid.

Honda (DRB) sales was 1.4k units in Aug (+1.4x MoM; -75.1% YoY) and 27.0k units YTD (-6.2% YoY). Honda has started its sales campaign in recent months in order to push sales volume prior to the expiry of SST exemption by end 2021. Management has indicated a new model launch by prior year end, which we expect to be new Civic model or new City hatchback.

Nissan (TCM) sales was 0.4k units in Aug (+1.2x MoM; -72.9% YoY) and 6.4k units YTD (-15.9% YoY). Overall sales remained dismal compared to market leaders Toyota and Nissan. Nissan is expected to maintain its strategy to avoid stiff pricing competition, while leveraging onto its core models: new Almera, Serena and Navara facelift.

Mazda (BAuto) recorded 0.7k units in Aug (+2.5x MoM; -41.7% YoY) and 6.3k units YTD (-5.0% YoY), almost catching up with Nissan. Management remains upbeat on the sales volume for the remaining months. We may expect delay on the anticipated attractive new models CX-30 CKD, MX-30 and BT-50 into 2022.

Source: Hong Leong Investment Bank Research - 23 Sept 2021