Maintain NEUTRAL with 2021 TIV target at 505k units (-5%) and a stronger recovery next year with 2022 TIV target of 600k units (+19%). With the re-opening of economic activities, and further driven by the 100% sales tax exemption on CKD passenger vehicles and 50% on CBU including SUV and MPV for six months until 30th June 2022, we expect buoyant recovery in car sales especially with the growing number of back-logged bookings for popular models (up to 6 months) and stream of new models launches in 2022. Nevertheless, for certain models, the recovery in car production could be limited by the on-going global constraint in semiconductor chip supply. The MIER CSI 3QCY21 at 101.7 points (+37.4ppt QoQ, +10.2ppt YoY) exceeded the optimism threshold after three years as consumers became more optimistic on spending for major consumer durables and high-value discretionary items locally (such as vehicles, imported goods and local travelling) given the still restricted overseas travelling especially with the outbreak of the OMICRON variant in the European countries. Notwithstanding the still high inflationary outlook, improving financial and employment expectations are beefing up consumer shopping plans in the coming months. Our sector picks are MBMR (OP; TP: RM3.50) and DRBHICOM (OP; TP ; RM1.80) given their exposure to the national marques’ strong volume growth.

Maintain NEUTRAL with 2021 TIV target at 505k units (-5%) and a stronger recovery next year with 2022 TIV target of 600k units (+19%). With the re-opening of economic activities, further driven by the 100% sales tax exemption on CKD passenger vehicles and 50% on CBU including SUV and MPV for six months until 30th June 2022, we expect buoyant recovery in car sales especially with the growing number of back-logged bookings for popular models (up to 6 months) and stream of new models launches in 2022 (including models launches that was postponed from 2021). Nevertheless, for certain models, the recovery in car production could be limited by the on-going global constraint in semiconductor chip supply. Our 2021 TIV target at 505k units (-5%), tracks ahead of MAA’s 2021 target TIV of 500k units while our 2022 TIV target at 600k units (+19%), is closely in line with MAA’s TIV target of 605k units (+21%). For stocks under coverage, we downgrade BAUTO to MARKET PERFORM (from OUTPERFORM) with unchanged TP of RM1.65 given the recent increase in share price nudging closer to our target, whereas we upgrade DRBHICOM to OUTPERFORM (from MARKET PERFORM) with unchanged TP of RM1.80 given the recent weakness in share price despite having consistent growth in TIV market share over other marques.

Consumer sentiment in 3QCY21 exceeded optimism threshold after three years. The Malaysian Institute of Economic Research’s (MIER) posted at 101.7 points (+37.4ppt QoQ, +10.2ppt YoY) for its 3QCY21 Consumer Sentiment Index (CSI). The MIER CSI 3QCY21 exceeded optimism threshold after three years as consumers turned more optimistic on spending for major consumer durables and high-value discretionary items locally (such as vehicles, imported goods and local travelling) given the still restricted overseas travelling especially with the outbreak of OMICRON variant in the European countries. Notwithstanding the still high inflationary outlook, improving financial and employment expectations are beefing up consumer shopping plans in the coming months. Various government assistances announced helped to maintain some consumer confidence for the rest of the year; particularly exemption of sales tax for passenger vehicles (mid-June 2020 to June-2022) 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. Overall, passenger vehicles’ loan approval rate showed a positive optimism at 50% despite just recovering from two months of lockdown compared to the lowest of 31% in April 2020 during the enhanced MCO. Concurrently, employment rate showed a positive development with unemployment rate of 4.3% from the start of the year at 4.9%.

Lockdown induced worse-than-expected results. For 3QCY21 reporting season, almost all came in below expectation (DRBHCOM, MBMR, SIME, UMW), with only BAUTO and TCHONG coming in within expectation as we have already factored sufficient earnings cut during prior results review. Overall, all Automotive players plunged due to FMCO lockdown which started 1st June 2021 till mid-August 2021, with gradual recovery afterwards driven by rising vaccination rates.

Stronger sales with full capacity operation in 4QCY2021. Looking forward to 4QCY21, we expect most of the auto players to chart a stronger drive with the full re-opening of Automotive sector, boosted by significant amount of back-logged booking which extend up to six months for certain models.

Source: Kenanga Research - 29 Dec 2021