We maintain our NEUTRAL rating on the AUTOMOTIVE sector with 2020 sales target units under review in the upcoming strategy report. According to the Malaysian Automotive Association (MAA), TIV for February 2020 registered sales of 40,403 units (-5% MoM, +1% YoY). Both weak MoM and marginal YoY sales growth were due to delay in new model launches (being pushed to 2HCY20) and negative impact of Covid-19 outbreak on consumer sentiment. 2MCY20 reported TIV of 83,055 units (-6%) with national marques (66%) continuing to surpass non-national marques (34%) driven mainly by Perodua (+8% MoM, +10% YoY) and boosted by Proton’s robust sales growth (+17% MoM, +89% YoY). Sales volume for March 2020 is seen skidding downhill due to the 2-week movement control order (MCO).

February registered sales of 40,403 units (-5% MoM, +1% YoY). Both weak MoM and marginal YoY sales growth were due to delay in new model launches (being pushed to 2HCY20) and negative impact of Covid-19 outbreak on consumer sentiment.

Taking a detailed look at the passenger vehicles segment (-6% MoM, 0% YoY), both MoM and YoY performances tracked the overall unit sales trend on the above-mentioned reasons. Proton (+17% MoM, +89% YoY) drove the strongest MoM and YoY sales from maiden sales of Proton X70 CKD and further supported by face-lifted Proton Saga, Iriz, and Persona (31,595 units Proton X70 delivered since CBU launch, with 1,973 units sold for February at 20% of sales). This was followed by, Perodua (+8% MoM, +10% YoY) on stronger delivery of the best-selling face-lifted Bezza (RM35K–RM49K) which was launched in early-January 2020 (2020 Perodua Bezza, has an order tally of 15k units, which include 8k units of converted orders for the previous models). Mazda (+2% MoM, +71% YoY), registered the 2nd highest YoY growth with the increased delivery for face-lifted CX-5 and all-new CX-8 which was earlier held back by pricing approval issues. Toyota (+8% MoM, -25% YoY) MoM sales growth was contributed by the all new Toyota Vios, all-new Toyota Yaris, and Toyota Hilux, which comprised 82% of UMW Toyota sales, but weak YoY growth posted as Toyota recorded a high base during the initial sales of all-new Vios last year. On the other hand, Honda (-71% MoM, - 71% YoY) fared the worst on the price increase by Honda Malaysia by 5-9% (City up RM4.6k, Jazz up RM5k, CR-V up RM12.7k) as well as consumers held back awaiting launch of new models (best-selling all-new Honda City 2020 in 2HCY2020), while Nissan (-27% MoM, 6% YoY) remained weak due to dearth of all-new model launches.

Sales volume for March 2020 to skid downhill on 2-week movement control order (MCO). All the marques’ showrooms, vehicle productions and deliveries are temporarily closed, halted and delayed for the period of 18th March till 31st March 2020 with a possibility of extension depending on the outcome. Some automakers took this chance for periodic maintenance of their automotive plants, such as UMW. If there is no extension, we expect higher delivery of new models after April 2020, (probably in the 2H20 after the fear inflicted by Covid-19 subsides), 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).

Maintain NEUTRAL on the sector with 2020 sales target units under review in the upcoming strategy report. In light of the fast-spreading COVID-19, our economic team views that a nationwide movement control order (MCO) to contain the outbreak will adversely impact the economy in the short term. This has led to showrooms, vehicle productions and deliveries to be temporarily closed, halted and delayed, respectively, across all marques. Going forward, the full impact would depend on the outcome of containment measures and whether movement restriction would be extended. Thus, we are placing our 2020 sales target of 612,000 (+1.3%) under review with a negative bias, but overall to be cushioned by exciting new launches, especially from the non nationals, better incentives program under NAP 2020, and positive impact from recent BNM cut in the overnight policy rate (OPR) and pre-emptive measures announced yesterday to assist those who may be financially challenged by Covid-19 impact. Notable merits is Perodua’s plan to nearly double its spending in investment for 2020, to a whopping RM1.06bn from RM569.2m last year, with the bulk of the investment to be used on plant modernisation, building expansion as well as preparation for a new model, which is expected to be the D55L SUV, according to reports.

Source: Kenanga Research - 25 Mar 2020