We project 2022 TIV at 600k units, a growth of +18.8% YoY (due to low base effect from 2021). TIV will be well supported by the extension of SST exemptions into 1H22, but slow-down in 2H22. OEMs will have to leverage on exciting new models launches (eg. Proton (DRB), Perodua (MBMR & UMW), Honda (DRB) and Toyota (UMW)) to support sales in 2H22. The sector is expected to benefit from RM appreciation against USD and JPY in 2022 vs current levels. We expect domestic OEMs Proton (DRB) and Perodua (MBMR & UMW) to continue outperform their competitors over the longer term, driven by attractively priced new models and new export programs. Maintain NEUTRAL on Automotive sector, with BUY recommendations on DRB (TP: RM2.30), MBMR (TP: RM4.80) and Sime (TP: RM2.68).

TIV. For 11M21, TIV registered a drop of -4.2% YoY, affected by Covid-19 pandemic and implementation of movement restrictions (especially in mid-2021, i.e. Phase 1). For 2021, we can expect TIV to achieve c.505k units (-4.6% YoY). For 2022, we expect a growth of +18.8% YoY to 600k units, mainly driven by extension of SST exemptions into 1H22 and several new attractive launches by end-2021 and early- 2022, as well as low base effect from 2021.

2022, a year of 2 halves. Overall 2022 TIV landscape can be divided into 2 periods: a strong 1H22 driven by the robust demand during SST exemption period (until Jun 2022); followed by a weak 2H22, post SST exemption, as consumers would have already brought forward their purchases. We expect a challenging 2H22 with stiff competitions across the board. OEMs will have to leverage onto attractive new models and sales programs in order to sustain sales. Attractive new launches include Proton (DRB) – new Geely-based model; Perodua (UMW & MBM) – Myvi facelift and new Alza; Honda (DRB) – new City hatchback and new HR-V; Toyota (UMW) – new Cross, facelift Vios and Yaris.

Sustaining consumer sentiment. The strong rebound in CSI to above 100 points in 3Q21, indicates recovery of consumer sentiment and spending as the economy reopens up with on-going government stimulus measures. We expect consumer sentiment to sustain into 2022 as the reopening hits full swing.

Low interest rate. The continued low 1.75% OPR in 2022 will provide certain degree of cost savings, conducive for new car purchases. We estimated a -25 bps effect on monthly instalment of -RM15/month (based on RM80,000 car price, with 90% loan application and 9-year loan period). Nevertheless, we expect BNM to only hike up 25 bps towards end 2022 as Malaysia’s economic recovery becomes more entrenched.

RM appreciation. We expect RM/USD to appreciate from current level of 4.20 to average 4.16 level in 2022 (vs. average 4.15 in 2021), and similarly JPY (x100) to also appreciate to average 3.63 level (Bloomberg forecast) in 2022 (vs. average 3.78 in 2021). Stronger RM will lower the effective input costs for imported CBU cars, CKD packs and raw materials, and subsequently improve OEMs’ margins. OEMs that have major exposure towards USD include Toyota (UMW) and Nissan (TCM), while for JPY, this includes Honda (DRB) and Mazda (BAuto).

Maintain NEUTRAL. While SST exemption extension will fuel TIV numbers into 1H22, TIV is expected to abate in 2H22. Our top picks are DRB (BUY, TP: RM2.30), MBMR (BUY, TP: RM4.80) for their strong leverage onto the national OEMs, i.e. Proton and Perodua, which assert more sustainable sales volume and potential export growth in the longer term. We also have BUY recommendation on Sime (BUY, TP: RM2.68), on strong rebound of the China market and sustainability from Australia’s mining sector.

Source: Hong Leong Investment Bank Research - 5 Jan 2022