Overall Oct TIV recovered to 63.5k units (+43.4% MoM, +10.0% YoY) driven by pent-up deliveries during the month as supply chain normalised post restriction relaxation since mid-Aug. Nevertheless, TIV still dropped -5.1% YTD to 382.3k units due to 2.5 months inactiveness during strict lockdowns for Jun to mid-Aug. We expect TIV to remain at this high level in coming months as supply chain normalises and OEMs maintain production to fulfil the strong demand. The further extension of SST exemption to mid-2022 will ensure strong sales into 1H22, but likely to weaken in 2H22. We raise our TIV assumptions to 500k units (from 480k units), but 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).

Malaysian Automotive Association (MAA) continued reporting MoM recovery of +43.4% to 63.5k units in Oct 2021 TIV as industry players ramped up production since mid-Aug 2021 to clear the current high order backlog. On a YoY basis, it was a growth of +10.0%. YTD TIV still declined slightly by -5.1% YoY to 382.3k units, due to two and half months of almost nil sales during strict lockdown measures from Jun to mid-Aug 2021 period. We expect TIV to maintain at this high level until year end as OEMs maintain their production level to meet the current order backlogs and the expected year-end sales. The extension of SST exemptions to 30 Jun 2022 has provided the industry some leeway to better plan their production line over a longer period as demand remains robust while supply being constraint by the on-going global microchip supply shortage in the near term. We now revise up our TIV forecast to 500k units (from 480k) for 2021.

Despite the expected strong TIV recovery in 4QCY21, we still maintain our NEUTRAL rating on the sector, as we expect TIV to drop post SST exemption expiry by mid CY22 with current on-going 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 achieved record monthly sales with 27.9k units (+96.7% MoM; +3.8% YoY) as the group managed to ramp up production level to 29.8k units during the month. However, YTD sales was still down by -14.5% YoY to 147.0k units due to loss of productions for Jun-Aug. Management has indicated it would be a tall order to achieve its new set 214k units sales target for 2021. Nevertheless, management indicated its orderbook remains healthy. Newly launched Myvi facelift has received over 4.3 units bookings, while management targets to deliver average 6k units/month.

Proton (DRB) recorded 12.8k units (+25.3% MoM; +16.5% YoY), mainly driven by its X series, while its Persona and Iriz models were affected by on-going microchips shortage. YTD sales was relatively flattish -0.6% YoY at 84.1k units. Inclusive of its export volume, Proton recorded 86.4k units (+1.6% YoY). We expect Proton to continue accelerating its export program into regional markets as well as CKD program in Pakistan in coming months.

Toyota (UMW) also outperformed the market with 8.4k units in Oct (+6.1% MoM; +31.7% YoY) and 54.0k units YTD (+24.9% YoY), mainly driven by its newly launched Corolla Cross model. The OEM has recently started booking exercise for new CKD Corolla Cross (including hybrid) at an indicative attractive price range of RM123-137k. Toyota is expected to achieve 70k units sales for the year, above its target of 62k units.

Honda (DRB) sales was 6.4k units in Oct (+59.3% MoM; +18.0% YoY) and 37.5k units YTD (-6.6% YoY), relatively in line with the market trend. Management has indicated a few new model line ups to be launched prior year-end in order to take advantage of the SST exemptions. New City hatchback (including hybrid) has recently been previewed and bookings has started, while we can potentially expect other model line-ups – new Civic, new HRV (including hybrid) and new BRV – in coming months.

Nissan (TCM) sales was 1.5k units in Oct (+19.4% MoM; -5.7% YoY) and 9.2k units YTD (-15.9% YoY), weaker than overall market trend. The relatively dismal performance vs. peers Toyota and Honda, was mainly due to less attractive available models and less aggress ive marketing efforts. Nissan is expected to maintain its strategy to avoid stiff pricing competition, while leveraging onto its core models – new Almera, Serena and Navara facelift. Upcoming new model include all new X-trail.

Mazda (BAuto) recorded 1.1k units in Oct (+35.4% MoM; -15.4% YoY) and 8.2k units YTD (-10.2% YoY), a step behind Nissan. Management remains upbeat on the sales volume for the remaining months. We may expect launching delay on the anticipated attractive new models CX-30 CKD, MX-30 and BT-50 into 2022.

Source: Hong Leong Investment Bank Research - 23 Nov 2021