Given the worse-than-expected impact of the extended MCO and sharp slowing of the economy, we downgrade our sector call to UNDERWEIGHT (from NEUTRAL) with a lower 2020 TIV target units of 420k (- 31% YoY) from 560k (-7% YoY), mindful that the 2QCY20 is a lost quarter. With this downgrade, we will revise our company calls and TP in the upcoming reports. According to the Malaysian Automotive Association (MAA), TIV for March 2020 registered sales of 22,478 units (-44% MoM, -59% YoY). Both MoM and YoY sales growth skidded downhill due to the movement control order (MCO) which started on 18th March 2020. 3MCY20 reported TIV of 106,428 units (-26%), forming 25% of our 2020 renewed sales target, with national marques (63%) expected to continue surpassing non-national marques (37%) driven mainly by Proton’s robust sales growth (+19% YoY) and supported by Perodua (-26% YoY) to cushion the impact. There were no sales expected for April 2020 as the MCO was extended until 12th May 2020 with showrooms closed across the country.

March 2020 registered sales of 22,478 units (-44% MoM, -59% YoY). Both MoM and YoY sales growth skidded downhill due to the movement control order (MCO) which started on 18th March 2020.

Taking a detailed look at the passenger vehicles segment (-45% MoM, -60% YoY), both MoM and YoY performances tracked the overall unit sales trend on the above-mentioned reasons. Honda (+87% MoM, -62% YoY) registered the only positive MoM growth on ‘3onus’ March Special promo combining a “Thank You Bonus” with March rebates and a RM500 petrol card or cash option with total cash savings of up to RM10,000 with 2019 and 2020 models available, with better deals for the former, naturally. For cars made in 2019, the total savings start at RM4,000 for the Honda HR-V and RM4,500 for the CR-V. The Jazz hatchback gets a RM5,000 shave while its B-segment sedan sister City gets RM6,000 off. The Odyssey MPV, a CBU import, also gets RM6,000 cash-back. Proton (-67% MoM, -47% YoY) sales plunged YoY from a high base of maiden sales of Proton X70 CKD. The sales of Proton marques were supported by the face-lifted Proton Saga, Iriz, and Persona (32,400 units Proton X70 delivered since CBU launch, with 805 units sold in March at 25% of sales). This was followed by, Mazda (-53% MoM, -48% YoY), with increased delivery for face-lifted CX-5 and all-new CX-8 which was earlier held back by pricing approval issues. Perodua (-54% MoM, -63% YoY) was cushioned by stronger delivery of its 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). Toyota’s (-25% MoM, -55% YoY) sales growth was contributed by the all new Toyota Vios, all-new Toyota Yaris, and Toyota Hilux, which comprised 74% of UMW Toyota sales. On the other hand, Nissan (- 67% MoM, -83% YoY) fared the worst due to dearth of all-new model launches.

No sales expected for April 2020 as MCO was extended until 12th May 2020. All the marques’ showrooms, vehicle productions and deliveries are temporarily closed, halted and delayed for the period of 18th March till 12th May 2020 with a possibility of extension depending on the outcome. For now, only service centres are allowed to operate. Some automakers took this chance for periodic maintenance of their automotive plants, such as UMW. If there is no extension, we expect a slight recoveries in delivery of new models after May 2020, (probably in the 2H 2020 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). Note that, manufacturer’s warranty on UMWT and Perodua’s vehicles will not be affected if they are unable to conduct vehicle maintenance according to the scheduled intervals as a result of the MCO. We believe that other manufacturers will also follow suit with similar policies.

Downgrade to UNDERWEIGHT with a lower TIV target of 420k (-31% YoY). Given the worse-than-expected impact of the extended MCO and sharp slowing of the economy, we downgrade our sector call to UNDERWEIGHT (from NEUTRAL) with a lower 2020 TIV target units of 420k (-31% YoY) from 560k (-7% YoY), mindful that the 2QCY20 is a lost quarter. With this downgrade, we will revise our company calls and TP in the upcoming reports. This is based on the following factors; closing of showroom during MCO and cautious consumer spending in 1HCY20 on high-value discretionary spending such as vehicles, imported goods and overseas travels. There could be some relieve in 2HCY20 by exciting new launches, especially from the non-nationals, better incentives program under NAP 2020, and positive impact from BNM cut in the overnight policy rate (OPR) and pre-emptive measures to assist those who might be financially challenged by Covid-19 impact. Our economic research team views that the 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.

Source: Kenanga Research - 30 Apr 2020