The Ministry of International Trade and Industry (MITI) has reinstated automotive manufacturing to the approved list of services in economic sectors allowed to operate during MCO 2.0. Vehicle production and component manufacturing were included in the initial directive issued on 12th January 2021, but an update saw them being omitted and now, in another U-turn, MITI has given the green light for all automotive assembly plants activity to be restored to the essential services list as of 16th January 2021. Note that, Automotive Maintenance, Repair, Showroom, Sales and Delivery centre are unaffected. We welcome this decision as a positive development for the Automotive industry supported by the extension of SST-exempted sales up to 30th June 2021 to clear the back-logged orders. Based on the recently released data; for 2020 fullyear TIV, Perodua sold 220,154 units, Toyota sold 59,320 units and Proton sold 109,716 units, which are respectively higher than their initial target numbers. Thus, we tweak 2020 TIV target higher to 515k units (- 17% YoY) from 500k units previously, and expecting a stronger recovery in 2021 with TIV target of 585k units (+14% YoY). Our sector pick is MBMR (OP; TP: RM4.10) for its pure proxy to national carmakers as the largest Perodua dealership and deep value in its 22.58% stake in Perodua. Maintain OVERWEIGHT for sector.

Rejoice! Business as Usual. The Ministry of International Trade and Industry (MITI) has reinstated automotive manufacturing to the approved list of services in economic sectors allowed to operate during the second movement control order (MCO 2.0). Vehicle production and component manufacturing were included in the initial directive issued on 12th January 2021, but an update to the document less than 24 hours thereafter saw them being omitted, with a specific footnote mentioning that automotive assembly and manufacturing activities were no longer included in the permitted list. Now, in another U-turn, MITI has given the green light for all automotive assembly plants covering vehicle and component manufacturing to continue operations, with the activity restored to the essential services list as at 16th January 2021. Previously, the ban was applicable only to states in which the MCO is in effect, specifically Kuala Lumpur, Selangor, Johor, Penang, Melaka, Sabah, Putrajaya and Labuan. This originally meant that Perodua Rawang Plant, both Toyota’s Bukit Raja and Shah Alam plants, Proton’s Shah Alam plant and Honda’s Pegoh plant in Melaka were impacted by the move. While assembly plants in other states under a recovery or conditional MCO such as the Hicom plant in Pekan, Pahang and the Inokom plant in Kulim, Kedah could remain in operations, interruptions to their operations were likely to happen at some point due to supply issues. This is because their ability to function would be subjected to them being able to secure parts, something that would be difficult if component vendors within the MCO areas were closed. We welcome this decision as a positive development for the Automotive industry supported by the extension of SST-exempted sales up to 30th June 2021 to clear back-logged orders. Subject to changes in SOP by the Government, current business hours are as follows:- Service Center (8am-6pm), Showroom (8.30am-7pm), and Factories (8am-5.30pm).

Maintain OVERWEIGHT with higher 2020 TIV target at 515k units (-17% YoY) from 500k units previously, and expecting a stronger recovery in 2021 with TIV target of 585k units (+14% YoY). Based on the recently released data, for 2020 full-year TIV, Perodua sold 220,154 units, Toyota sold 59,320 units and Proton sold 109,716 units, all higher than their initial target numbers. Thus, we tweak our 2020 TIV target higher to 515k units (-17% YoY) from 500k units previously, and expect a stronger recovery in 2021 with TIV target of 585k units (+17% YoY) even after factoring in cautious consumer sentiment under MCO 2.0. We have OP call on BAUTO (TP: RM1.70), DRBHCOM (TP: RM2.50), and UMW (TP: RM3.85) with MBMR (TP: RM4.10) our top pick for the sector for its pure proxy to national carmakers as the largest Perodua dealership and deep value in its 22.58% stake in Perodua. We believe the new volume-driven launches in 4QCY20 (i.e. Proton X50, Honda City and Nissan Almera) could help improve sales with back-logged booking overflowing into 2021 and boosted by the extension of SST exemption to 30th June 2021, seasonal promotions and new launches in the 2H of the year. Overall, 2021 could potentially be a better year supported by new launches (e.g. Perodua D55L) along with better incentives program under NAP 2020, positive impact from BNM’s overnight policy rate (OPR) cut and pre-emptive measures to assist those whom might be financially challenged by Covid-19 impact. Our economics research team have the view that an expected global growth recovery and the impact of the large fiscal stimulus on domestic economy would result in a projected growth rebound in GDP to 3.9% from initial forecast of 6.1% (MoF: 6.5% - 7.5%) in 2021 compared to 2020 GDP growth forecast at -5.1% (MoF: -4.5%). Maintain OVERWEIGHT.

Source: Kenanga Research - 18 Jan 2021