We maintain OVERWEIGHT with 2021 TIV target of 585k units (+11% YoY). We believe the new volumedriven launches (i.e. Perodua ATIVA, Proton X50, Honda City and Nissan Almera) could help spur sales along with the overflowing back-logged bookings and further boosted by the extension of SST exemption to 30th June 2021, seasonal promotions and more new launches expected in the 2H of the year. On consumer sentiment, the MIER 4QCY20 CSI posted 85.2 points (-6.3ppt QoQ, +2.9ppt YoY), a decline after three quarters of recovery, due to prolonged MCO which effected financial and job confidence. Year-end shopping plans also took a breather as consumer held back purchases in preparation for MCO 2.0 in January 2021, but cushioned by various government assistance and on-going government vaccination programs to re-energise the economy with Kenanga economics research team projecting GDP growth to rebound by 4.5% in 2021 (BNM: 6.0% - 7.5%; 2020: -5.6%). Our sector pick is MBMR (OP; TP: RM4.90) as a pure proxy to the largest national Perodua dealership and deep value in its 22.58% stake in Perodua.

Maintain OVERWEIGHT with 2021 TIV target of 585k units (+11% YoY). We believe the new volume-driven launches (i.e. Perodua ATIVA, Proton X50, Honda City and Nissan Almera) could help spur sales along with the overflowing back-logged bookings and further boosted by the extension of SST exemption to 30th June 2021, seasonal promotions and more new launches expected in the 2H of the year. Overall, 2021 could potentially be a better year along with better incentives program under NAP 2020, positive impact from BNM’s overnight policy rate (OPR) cut and pre-emptive measures that soften the 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 GDP growth rebound of 4.5% in 2021 (BNM: 6.0% - 7.5%; 2020: -5.6%). For stocks under coverage, we maintain our calls, but roll over valuation year to FY22E for all our stocks which prompted us to upgrade TP for BAUTO to RM1.50 from RM1.30, MBMR to RM4.90 from RM4.60, and UMW to RM4.35 from RM4.00, with no changes for DRBHCOM, SIME and TCHONG.

Consumer sentiment recovery on hold due to prolonged MCO. The Malaysian Institute of Economic Research’s (MIER) posted 85.2 points (-6.3ppt QoQ, +2.9ppt YoY) for its 4QCY20 Consumer Sentiment Index (CSI). After three quarters of recovery, the CSI fell which we believe was due to the prolonged MCO which affected financial and job confidence with yearend shopping plans taking a breather as consumer held back purchases in preparation for MCO 2.0 in January 2021. Nonetheless, this was cushioned by various government assistances under PENJANA and KITA PRIHATIN, particularly exemption in sales tax for passenger vehicles (mid-June 2020 to 30 June 2021) and extended loan moratorium for financially distressed individuals. The CSI is still below the optimistic threshold (>100pts) as consumers are still observing cautious spending patterns especially on high-value discretionary items (such as vehicles, imported goods and travelling), coupled with stores’ limited operating time (under RMCO) and still-closed international borders. Note that, passenger vehicles loan approval rate remains unexciting at 60.8% as of January 2021, but charting a positive recovery from the lowest of 31% in April 2020 during the enhanced MCO. This is due to stringent loan approval on employment criteria for several economic sectors that still see high risk impact from COVID-19 restriction i.e. aviation.

Generally, in-line. For 4QCY20 reporting season, two stocks (MBMR & UMW) performed above expectations, and three (BAUTO, DRBHCOM, & SIME) within expectations while one (TCHONG)’s result which was delayed to 31st March 2021 disappointed. Overall, all Automotive players recorded significant increase in profit buoyed by sales tax exemption and tremendous production level contribution from associates, especially Perodua with full-capacity stretched to meet backlogged demand.

Looking forward to 1QCY2021, we expect most of the auto players to chart a slower drive with sales growth coming off from a higher 4QCY2021 base on pre-emptive buying driven by exciting year-end promotional campaign, sluggish showroom activity from MCO 2.0, and shortage of components and parts for some players especially during the temporary closure of automotive factories in the 1st week of MCO 2.0 that began 13th January. Nevertheless, all new model launches in March 2021 especially the highly anticipated all-new Perodua ATIVA (13,000 units outstanding bookings) should cushion the negative impacts.

Source: Kenanga Research - 2 Apr 2021