We maintain our sector view at NEUTRAL with our 2021 TIV target at 460k units (-13%) tracking behind MAA’s 2021 target TIV of 500k units, with recovery starting 4QCY21 on economic re-opening and the usual year-end promotional campaign. We expect a stronger recovery next year with 2022 TIV target at 600k units (+30%), closely in line with MAA’s TIV target of 605k units (+21%). Our 2022 TIV growth will be driven by the expected recovery in economy post lockdown and the assumption that herd immunity would be achieved by then, inevitably resulting in relaxation of SOPs toward revitalising local travel which should push demand for passenger vehicles especially the affordable national marques as well as recovery in semiconductor chip supply. Additionally, a few automakers have assured their commitment to absorb SST beyond Dec 2021. On consumer sentiment, the MIER 2QCY21 CSI posted at 64.3 points (-34.6ppt QoQ, -25.8ppt YoY), nose diving on lockdown and cautious spending activities. This is somewhat cushioned by various government assistances announced to maintain some consumer confidence for the rest of the year; 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. 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 at 460k units (-13%), expected recovery in 4QCY21 on economic re-opening and the usual year-end promotional campaign. With the re-opening of economic activities including sales and production for motor vehicles starting 13th August 2021 especially for key states of Selangor and Kuala Lumpur, we expect buoyant recovery in car sales especially with the growing number of back-logged booking for the popular models as well as the usual year-end promotional campaign. Nevertheless, the recovery in car production could be limited by the on-going global constraint in semiconductor chip supply for certain models. We keep our 2021 TIV target at 460k units (-13%) tracking behind MAA’s 2021 target TIV of 500k units. We expect a stronger recovery next year with 2022 TIV target at 600k units (+30%), closely in line with MAA’s TIV target of 605k units (+21%). Our 2022 TIV growth will be driven by the expected recovery in economy post lockdown and the assumption that herd immunity would be achieved by then, inevitably resulting in relaxation of SOPs toward revitalising local travel which should push demand for passenger vehicles especially the affordable national marques as well as recovery in semiconductor chip supply. Additionally, a few automakers have assured their commitments to absorb SST beyond Dec 2021. For stocks under coverage, we increase our TP for BAUTO to RM1.65 from RM1.45 based on higher 15x CY22E EPS (at +0.5 SD of 5-year Fwd. historical mean PER) from 13x CY22E EPS (at 5-year Fwd. historical mean PER). We believe BAUTO should trade at higher valuation PER due to its more resilient strategy and commitment in securing promotional rebates post-SST exemption to deliver its back-logged booking. No change to other stocks’ recommendation.

Consumer sentiment nose-dived in 2QCY21. The Malaysian Institute of Economic Research’s (MIER) posted at 64.3 points (- 34.6ppt QoQ, -25.8ppt YoY) for its 2QCY21 Consumer Sentiment Index (CSI). The MIER CSI took a nose-dive in 2QCY21 as consumers exercised more caution in their spending for major consumer durables by tightening their purse strings for the rest of 2021 to face the full lockdown which started 1st June 2021 up to 12th August 2021, which was extended albeit with gradual economic re-opening starting 13th August 2021. The outlook for employment is equally lacklustre. Various government assistances announced helped to maintain some consumer confidence for the rest of the year; particularly exemption for sales tax for passenger vehicles (mid-June 2020 to end-2021) and extended loan moratorium for financially distressed individuals. This prevented the financial situation from worsening and with anticipation of better income and job prospects, consumers are expecting brighter days ahead, but not without growing jitters over rising essential item prices. The CSI is expected to remain below the optimistic threshold (>100pts) as consumers are still observing cautious spending habits especially on high-value discretionary items (such as vehicles, imported goods and travelling), coupled with stores’ limited operating time and still-closed international borders. Note that, passenger vehicles’ loan approval rate remained unexciting at 57.1% as of July 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 restriction i.e. aviation, hospitality. This is further worsened by only a slight reduction in unemployment rate to 4.8% from the start of the year at 4.9%.

All players’ sales impacted by the lockdown. For 2QCY21 reporting season, BAUTO came in above, with other three players coming in within (MBMR, SIME, and TCHONG), while DRBHCOM and UMW came below, expectation. Overall, all Automotive players recorded downtrend in sales from previous quarter due to FMCO lockdown which started from 1st June 2021 till 12th August 2021 when all automotive activities were halted. Nevertheless, some marques recorded better-than-expected sales due to strong 1QCY21 performance which cushioned the negative impacts.

Re-opening of economy to drive sales. Looking forward to 3QCY21 and 4QCY21, we expect most of the auto players to chart stronger earnings starting 13th August 2021 with the re-opening of automotive sector, boosted by significant volume of back-logged booking which extend up to 3 to 4 months for some models.

Source: Kenanga Research - 5 Oct 2021