• July-20 Total Industry Volume (TIV) rebounded by 13% yoy to 57.6k units (+29% mom).
• Although ytd 7M20 TIV of 232.2k units (-33% yoy) only accounted for 50% of our full-year forecasts, we believe auto sales are expected to pick up in the remaining months of 2020, on front loading driven by cheaper car prices due to Sales & Service Tax exemption.
• Maintain Overweight. Our Sector Top Pick Is UMWH.

National’s 7M20 Market Share Expanded to 63.5%

The national carmaker’s 7M20 market share rose to 63.5% (7M19 market share: 55.8%), as we believe Malaysians continued to opt for more affordable national cars to grapple with the the economic uncertainty from the Covid-19 pandemic. Notably, Proton’s July20 car sales rebounded by 54% yoy to 13.2k units (+37% mom) as the Saga, Persona, Exora and X70 models clinched top position in their respective vehicle segments. Perodua’s July20 performance was also commendable at 23.2k units (+17% yoy, +9%mom), led by healthy demand for its existing Perodua line-up, maintaining its dominant 41.9% market share in 7M20 (7M19: 40.8%).

Sequential Sales Improvement for Non-national Brands

The cheaper car prices due to the Sales & Service Tax exemption also resulted in sequential improvement for most key non-national carmakers. Toyota stood out as the champion among the Japanese brands in July20 - car sales rose by 30% yoy to 7.4k units (+71% mom); with 7M20 market share of 11.2% (7M19 market share: 10.7%). We believe that the all-new Toyota RAV4 as well as the upcoming 2 new CKD models will help sustain Toyota’s sales momentum in 2H20. Over at the premium market, both BMW/MINI and Mercedes-Benz only disclose their TIV on a quarterly basis. Although both BMW/MINI and Mercedes-Benz’s 6M20 car sales had declined by 63% yoy to 4.1k units, we gather that foot traffic and orders for the luxury brands are returning to pre-lockdown levels backed by the cheaper car prices from the SST exemption mentioned above.

Maintain OVERWEIGHT

Our 2020E TIV forecast remains unchanged at 465k units (-23% yoy), as we expect the sector to benefit from the the cheaper SST exempted car prices. For exposure, UMWH MK (RM2.55, BUY) is our country and sector pick, riding on the sustained demand of Perodua and fresh model line-ups from Toyota in 2H20. Downside risks to our view could come from: i) a prolonged tightening of auto financing hindering the borrowing ability of car buyers; ii) exchange rate risk; and iii) a slowdown in the economy.

Source: Affin Hwang Research - 25 Aug 2020