We maintain UNDERWEIGHT on the sector with 2020 TIV target units of 420k (-31% YoY). According to the Malaysian Automotive Association (MAA), TIV for April 2020 registered sales of 141 units (-99% MoM, -100% YoY). However, the said units were only statistics from JPJ e-Daftar system, as there was no delivery as all the marques’ showrooms, vehicle productions and deliveries were temporarily closed, halted and delayed for the period of 18th March till 12th May 2020, with some showrooms only gradually re-opening starting 4th May 2020. Note that, official document from JPJ can only be retrieved starting 13th May 2020 for vehicles collection. 4MCY20 reported TIV of 106,601 units (-45%), forming 25% of our 2020 sales target. Sales volume for May 2020 is expected to be significantly higher than April 2020 with the re-opening of business, but still lower than traditional monthly registration prior to MCO, given social distancing resulting in long queues at PUSPAKOM, JPJ, cautious consumer spending, and stringent loan approval.

April 2020 registered sales of 141 units (-99% MoM, -100% YoY). The units registered were only a statistic from JPJ e-Daftar system, with no actual delivery as all the marques’ showrooms, vehicle productions and deliveries were temporarily closed, halted and delayed for the period of 18th March till 12th May 2020, with some showrooms only gradually re-opening starting 4th May 2020. Note that, the official document from JPJ can only be retrieved starting 13th May 2020 for vehicles collection. The registrations that were carried out were for vehicle purchases in which car loans had already been approved pre-MCO along with an issued Letter of Undertaking (LoU), and the completion of the registration was so there would be no lapse in the agreement, which would entail going through the whole process again. However, the registered vehicles would not have physical documentation or road tax, and with no PDI and facilities closed, buyers would have had no avenue to collect the vehicles, rendering them mere statistics in the system.

Sales volume for May 2020 is expected to be significantly higher than April 2020 with the re-opening of business, but still lower than traditional monthly registrations prior to MCO, with long queues at PUSPAKOM, JPJ, cautious consumer spending, and stringent loan approval. Despite the Federal Government allowing most of the economic sectors to re-open on 4th May 2020, including showrooms, the MCO is still in effect with revised measures (i.e. conditional MCO) which, together with nine states still maintaining strict MCOs, will continue to restrict consumer spending appetite on high value items, in our view.

We maintain UNDERWEIGHT on the sector with 2020 TIV target units of 420k (-31% YoY). We believe that national marques would fare worse than non-national marques with target markets of lower to mid-income range being the most financially distressed segment. With the economy slowing sharply, MAA also envisaged lower TIV forecast for 2020 at 400k units (-34% YoY). Furthermore, the planned new launches for 2HCY20 could be delayed given the weak consumer sentiment, but some reliefs could arise from better incentives program under NAP 2020, and positive impact from BNM’s overnight policy rate (OPR) cut and pre-emptive measures to assist those who might be financially challenged by Covid-19 impact. Our economic research team views that the MCO to contain the outbreak will adversely impact the economy in the short term with 2020 GDP expected to contract by 1.9%. Going forward, the final impact would depend on the outcome of containment measures and whether the movement restriction would be extended.

Source: Kenanga Research - 27 May 2020