We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for January 2020 registered sales of 42,652 units (-22% MoM, -12% YoY). Both MoM and YoY sales growth were weaker due firstly, to January’s short working month with the Chinese New Year celebrated earlier than last year; secondly, high base effect of Dec year-end sales; and thirdly, market uncertainty following the announcement of the implementation of new excise duty regulations which is still under negotiation to ensure duty changes will abide the World Trade Organisation regulation. 1MCY20 reported TIV of 42,652 units (-12%) was within our expectation at 7% of our 2020 TIV target of 612,000 units (+1.3%) with national marques (61%) surpassing non-national marques (39%) owing to Perodua and, boosted by Proton’s expected robust sales growth (+24% YoY). Sales volume for February 2020 is expected to be better than January with the longer working month. Our sector top-pick is BAUTO (OP; TP: RM2.65) which offers a steady dividend yield of 8.5%.

January registered sales of 42,652 units (-22% MoM, -12% YoY). Both MoM and YoY sales growth were weaker due to the short working month as Chinese New Year festive holidays came earlier than last year, December’s high base effect, as well as market uncertainty following the announcement of the implementation of new excise duty regulations which is still under negotiation to ensure duty changes will abide the World Trade Organisation regulation.

Taking a detailed look at the passenger vehicles segment (-21% MoM, -12% YoY), both MoM and YoY performances tracked the overall unit sales trend on the above-mentioned reasons. Mazda (+20% MoM, -32% YoY), registered the only positive MoM growth with the increased delivery for face-lifted CX-5 and all-new CX-8 which was earlier held back by pricing approval issues. Proton (-23% MoM, +24% YoY) drove the highest YoY sales from a lower base last year due to late Proton X70 CBU delivery (29,622 units delivered since CBU launch, with 1,367 units sold for January, 16% of sales), and further supported by face-lifted Proton Saga, Iriz, and Persona. Toyota (-61% MoM, +22% YoY) has the 2nd highest YoY sales growth contributed by the all-new Toyota Vios, all-new Toyota Yaris, and Toyota Hilux, which comprised 80% of UMW Toyota sales, but fared the worst MoM as Toyota recorded the highest base growth in the previous month compared to other marques. This was followed by, Perodua (-5% MoM, -13% YoY) which suffered setback from the deferred delivery of the best-selling face-lifted Bezza (RM35K–RM49K) which was launched in early-January 2020 (2k units of the 2020 Perodua Bezza, have been sold, out of an order tally of 15k units, which includes 8k units of converted orders for the previous models). On the other hand, for Honda (-16% MoM, -19% YoY), overall sales was from its best-selling models of Honda City and Honda HR-V but it is still awaiting launch of new models to remain competitive (best-selling all-new Honda City 2020 in 1HCY2020), while Nissan (-34% MoM, -32% YoY) remained weak due to dearth of all-new model launches.

Sales volume for February 2020 is expected to be better than January 2020 with the longer working month and will be supported by the higher delivery of new models, including the face-lifted Perodua Bezza, all-new Perodua ARUZ (entry-level SUV segment), Honda HR-V facelift (includes Hybrid), all-new Toyota Vios, all-new Toyota Yaris, all-new Proton X70 CKD (with a marginal price reduction for all model ranges), face-lifted Proton Persona, Iriz, and Saga (X70 unique features), face-lifted CX- 5, all-new Mazda CX-8, all-new Mazda CX-30 (launched on 15th January 2020), all-new Honda Civic 2020, and all-new Accord 2020 (launched on 26th February 2020).

Source: Kenanga Research - 3 Mar 2020