We maintain UNDERWEIGHT on the sector with 2020 TIV target units of 420k (-31% YoY). The MIER CSI (Consumer Sentiment Index) score for 1QCY20 was at 51.1 points (-31.2ppt QoQ, -34.5ppt YoY), which is below the optimistic threshold (>100pts) and is at the lowest since 1988 with household income at its weakest due to cautious spending patterns observed especially on high-value discretionary items coupled with the closure of stores during the MCO. Furthermore, passenger vehicles loan approval rate remains unexciting averaging just 50% up to May 2020. That said, we are expecting consumer sentiment to remain subdued in the upcoming quarters on the back of worsening household income and loan approval rate in line with rising unemployment rate to 5% in April 2020, the highest level since 1989. We believe that national marques would fare worse than non-national marques as their target markets of lower to mid-income range is the most financially distressed segment. Furthermore, the planned new CKD launches, for 2HCY20 could be delayed given the weak consumer sentiment and non-national marques could re-position their launches toward CBU, as they entailed less investment cost and inventory holding compared to CKD.
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 as their target markets of lower to mid-income range is the most financially distressed segment. With the economy slowing sharply, MAA envisaged lower TIV forecast for 2020 at 400k units (-34% YoY). Furthermore, the planned new CKD launches for 2HCY20 could be delayed given the weak consumer sentiment, but some relief could arise from sales tax exemption until the end-of the year, better incentives program under NAP 2020, and the positive impact from BNM’s overnight policy rate (OPR) cut and preemptive measures to assist those who might be financially challenged by Covid-19 impact. On the other hand, non-national marques could re-position their launches toward CBU, as they entailed less investment cost and inventory holding compared to CKD. Our economic research team is of the view that the MCO to contain the outbreak will adversely impact the economy in the short term with 2020 GDP expected to contract by 2.9%. Going forward, the final impact would depend on the outcome of containment measures and economic stimulus from the government. Overall, we believe that the quantum of TIV decline will not be as severe as the 1997-98 Asian Financial Crisis (-60%), but below the 2007-08 sub-prime crisis (+13%) based on the current state of the Malaysian economy, and cushioned by the tax exemption on passenger vehicles until the end of the year.
Consumer sentiment to remain subdued. The Malaysian Institute of Economic Research’s (MIER) posted 51.1 points (- 31.2ppt QoQ, -34.5ppt YoY) for its 1QCY20 Consumer Sentiment Index (CSI). The CSI is well below the optimistic threshold (>100pts) and at the lowest since 1988 with household income at its weakest due to cautious spending patterns observed especially on high-value discretionary items (such as vehicles, imported goods and overseas travels), coupled with the closure of stores and international borders during MCO. That said, we are expecting consumer sentiment to remain subdued in the upcoming quarters on the back of worsening household income in line with the rising unemployment rate of 5% in April 2020, the highest level since the end of the communist insurgency in Malaysia in 1989 as the labour market bears the brunt of the government’s Movement Control Order (MCO) policy. Furthermore, passenger vehicles loan approval rate remains unexciting at average of 50% up to May 2020.
Both marques suffering from MCO in 1QCY20. For 1QCY20 reporting season, 3 stocks (BAUTO, DRBHCOM, and TCHONG) came below expectation, with the rest coming in (SIME, MBMR and UMW) within expectations. Overall weaker 1QCY20 unit sales was seen for carmakers, dampened by weaker consumer sentiment caused by the Covid-19 pandemic and further worsened by the unfavourable forex movement during this global outbreak.
Looking forward to 2QCY20/3QCY20, We expect most of the carmakers to perform weaker in 2QCY20 with the closure of showrooms, factory and delayed delivery up to 12th May 2020, as well as the surge in unemployment rate in April 2020. Some relief could arise from the tax exemption on passenger vehicles starting 15th June 2020, which could also improve 3QCY20 results to meet our targeted 2020 TIV target units of 420k (-31% YoY). Another push could be from the upcoming new launches, including the Proton X50 (CKD, 2HCY20), Perodua D55L/Raizen (2HCY20), all-new Honda City 1.0 Turbo (2HCY20/2021), and all-new Nissan Almera 1.0 turbo (2HCY20). There are also streams of unannounced all-new launches pending pricing approvals which could lean towards CBU.The quantum of vehicles price reduction under sales tax exemption are ;- (i) Perodua - average price lower by 3%-6%, (ii) Proton - average price lower by 1%-6%, (iii) Honda - average price lower by 3%-5%, (iv) Toyota - average price lower by 1%-5%, (v) Mazda - average price lower by 2%-4%, and (vi) Nissan - average price lower by 1%-6%
Source: Kenanga Research - 10 Jul 2020
Created by kiasutrader | Aug 26, 2024