TIV is expected to experience a sharp rebound, thanks to the extension of SST exemption that will last until Jun 2022. To recap, Malaysia’s TIV had plunged 3 consecutive quarters from a high of 184.1k in 4Q20 to 68.8k in 3Q21 due to supply chain bottlenecks and subsequent implementation of Phase 1 restricting automakers’ output. Nevertheless, we expect TIV to rebound sharply by 179.2% QoQ in 4Q21 to 192.1k units as OEMs ramp up production to meet the order backlogs and the expected year-end sales. Nevertheless, we expect the 2021 TIV to reach 510k, easing 3.7% YoY from 529.4k in 2020. Despite the on-going semiconductors’ shortages, MAA still anticipates Malaysia’s TIV to experience a recovery to 600k units (#Figure 2) in 2022 as driven by the extended SST exemption to Jun 2022, while OEMs better manage their supply chain for the year.

Stronger 2HFY22 for BAUTO. We expect BAUTO to see a robust sales recovery starting 3QFY22, underpinned by (1) better TIV outlook; (2) extended SST exemptions until Jun 2022; (3) healthy order backlog for Mazda (c.2.0k, indicative 1.5-2.0 months delivery backlog). Other than that, we reckon BAUTO’s upcoming launches (Figure# 3) will propel its sales volume in CY22 as well.

Expanding its roadmap to KIA and PEUGEOT. While we believe it will not be an easy road for BAUTO to restore customer confidence in KIA and PEUGEOT owing to the low resale value amid consumer’s perception of bad after-sales services. Nonetheless, we reckon consumer confidence will partially be restored after BAUTO takes over KIA and PEUGEOT, as seen in BAUTO’s good track record in managing and transforming Mazda franchises. To recap, when Mazda was initially distributed by Cycle & Carriage Bintang Bhd back in 1989, only 500-600 cars were sold each year. Nevertheless, following BAUTO’s acquisition of Mazda distributorship in 2008, Mazda’s vehicle sales surged from 886 units in FY09 to 9,484 units in FY20. Hence, we are cautiously optimistic that BAUTO may transform KIA and PEUGEOT performance to greater heights, underpinned by its solid experience in managing customer experience.

Trading near its uptrend support. Technically, BAUTO is trading near its uptrend channel support of RM1.48-1.52 with indicators showing uptick bias. In the wake of the higher lows pattern, a decisive breakout above RM1.60 will spur prices higher towards RM1.70-1.74 territory. Cut loss at RM1.43

Source: Hong Leong Investment Bank Research - 16 Dec 2021