We maintain our sector view at NEUTRAL with 2021 TIV target 545k units (+3% YoY). Our TIV growth will be driven by the extension of SST-exemption until end-2021, despite a hiccup in sales from the closure of showrooms and vehicle production halt during the Phase 1 lockdown period, and global chip shortage, which will be offset by sufficient supply of the newer models that garner better margins. We still believe the new volume-driven launches (i.e. Perodua ATIVA, Proton X50, Honda City and Toyota Yaris/Vios) could help spur sales along with overflowing back-logged bookings and further boosted by the extension of SST exemption, and seasonal promotions. On consumer sentiment, the MIER 1QCY21 CSI posted 98.9 points (+13.7ppt QoQ, +47.8ppt YoY) with various government assistances announced under PENJANA and KITA PRIHATIN helped to maintain some consumer confidence for 1QCY21, particularly exemption in sales tax for passenger vehicles (mid-June 2020 to end-2021) and extended loan moratorium for financially distressed individuals with further on-going vaccination programs to re-energise the economy with Kenanga economics research team projecting GDP growth rebound of 5.0-6.0% (point forecast: 5.5%) in 2021 (BNM estimates: 6.0% - 7.5%; 2020: -5.6%). Our sector pick is MBMR (OP; TP: RM3.50), a pure proxy to the largest national Perodua dealership with deep value in its 22.58% stake in Perodua.

Maintain NEUTRAL with 2021 TIV target 545k units (+3% YoY). Our TIV growth will be driven by the extension of SST exemption until end-2021, despite a hiccup in sales from the closure of showrooms and vehicle production halt during the Phase 1 lockdown period and global chip shortage, which will be offset by sufficient supply of the newer models that garner better margins. We still believe the new volume-driven launches could help spur sales along with overflowing back-logged bookings and further boosted by the extension of SST exemption, and seasonal promotions. Our economics research team have the view that an expected global growth recovery and the impact of the large fiscal stimulus on the domestic economy would result in a projected GDP growth rebound of 5.0-6.0% (point forecast: 5.5%) in 2021 (BNM estimates: 6.0% - 7.5%; 2020: -5.6%), for now. For stocks under coverage, we upgrade SIME to OP from MP with unchanged TP of RM2.35 due to the recent weakness in its share price as well as on the continuous improvement in its main China operation, while Malaysia operation remains clouded by uncertainty of an extended RMCO, but offset by SST exemption till end-2021, and we downgrade TCHONG to UP from MP with unchanged TP of RM1.10 due to its uncertain direction as its overall unit sales continued to be weak despite the launch of the popular all-new Nissan Almera. No change to other stocks’ recommendation.

Consumer sentiment’s mild recovery in 1QCY21. The Malaysian Institute of Economic Research’s (MIER) posted 98.9 points (+13.7ppt QoQ, +47.8ppt YoY) for its 1QCY21 Consumer Sentiment Index (CSI). Various government assistances announced under PENJANA and KITA PRIHATIN helped to maintain some consumer confidence for 1QCY21, particularly exemption in sales tax for passenger vehicles (mid-June 2020 to end-2021) and extended loan moratorium for financially distressed individuals. This prevented the financial condition in 1QCY21 from worsening, and with hopes of better income and job prospects, consumers expect shopping to return, but not without growing jitters over rising essential item prices. Nevertheless, 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 53.3% as of April 2021, but charted a positive recovery from the lowest of 31% in April 2020 during the enhanced MCO. This is due to stringent loan approval based on employment criteria for several economic sectors that still see high risk impact from COVID-19 restriction i.e. aviation, hospitality. This is further worsened by only a slight reduction in unemployment rate to 4.6% from the start of the year at 4.9%.

Generally, in-Line. For the 1QCY21 reporting season, almost all came within expectations (DRBHCOM, MBMR, SIME, TCHONG and UMW) except for one (BAUTO) which was affected by both the ending of its warranty promotion and MCO 2.0. Overall, all Automotive players recorded significant increase in profit buoyed by sales exemption sales, albeit weaker QoQ following the implementation of MCO 2.0 in January 2021 and partly due to the much higher demand towards the end of last year as consumers were rushing to purchase cars ahead of the anticipated end of the SST on 31 December 2020 (which was subsequently extended until 30 June 2021).

Looking forward to the 2QCY21, we expect most of the auto players to chart a slower drive with total lockdown in June 2021 resulting in all the marques’ show rooms, vehicle productions and deliveries to be temporarily closed, halted and delayed for the Phase 1 period. We still believe the new volume-driven launches could help spur sales along with overflowing back-logged bookings and further boosted by the extension of SST exemption until end of the year, and seasonal promotions in 2HCY21. Maintain NEUTRAL with 2021 TIV target of 545k units (+3% YoY)

Source: Kenanga Research - 5 Jul 2021