Maintain NEUTRAL with 2022 TIV target of 600k units (+18%). With the re-opening of economic activities, and further driven by the 100% sales tax exemption on CKD passenger vehicles and 50% similar exemption on CBU including SUV and MPV for six months until end-Jun 2022, we expect buoyant recovery in car sales as evident from 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 were postponed from 2021). Automakers have prioritized usage of scarce resources like diverting any precious semiconductors they have to their most profitable vehicles such as full-size trucks and SUVs, as well as luxury vehicles. The MIER 4QCY21 Consumer Sentiment Index (CSI) posted at 99.0 points (-2.7ppt QoQ, +13.8ppt YoY) which has fallen below the optimism threshold once again with spending skewed toward local major consumer durables and high-value discretionary items given the still restricted overseas travelling. Malaysian Automotive Association (MAA) are currently vying for further SST exemption extension to end-2022 as the current chip shortages are limiting automakers’ ability to maximise production capacity to meet back-logged demand. 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 2022 TIV target of 600k units (+18%). With the reopening of economic activities, and further driven by the 100% sales tax exemption on CKD passenger vehicles and 50% similar exemption on CBU including SUV and MPV for six months until end-Jun 2022, we expect buoyant recovery in car sales as evident from 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 were postponed from 2021). Additionally, Battery Electric Vehicles (BEVs) new launches are expected to be boosted by the full exemption on import & excise duties, sales tax, road tax, and individual tax relief of up to RM2,500 for the costs of purchase and installation as well as rental and subscription fees of EV charging facilities up to 31 December 2025 (for CKD and CBU up to 2023) to support development of the local EV industry. Nevertheless, for certain models, the recovery of car production could be limited by the on-going global constraint in semiconductor chips supply. Automakers have prioritized usage of such resources, diverting any precious semiconductors they have to their most profitable vehicles such as full-size trucks and SUVs, as well as luxury vehicles. Malaysian Automotive Association (MAA) are currently vying for further SST exemption extension to end-2022 as the current chip shortages are limiting automakers’ ability to maximise production capacity to meet backlogged demand which stretched up to 6 months for certain models. Our 2022 TIV target at 600k units (+18%) is in line with MAA’s 2022 TIV target.

Consumer sentiment in 4QCY21 suffered slight setback after record optimism in the third quarter. The Malaysian Institute of Economic Research (MIER)’s 4QCY21 CSI posted at 99.0 points (-2.7ppt QoQ, +13.8ppt YoY). The MIER CSI 4QCY21 has fallen below the optimism threshold once again with spending skewed toward local major consumer durables (such as vehicles, imported goods and local travelling) and high-value discretionary items given the still restricted overseas travelling with continued subdued income and job expectations alongside growing concerns over rising prices, especially with the outbreak of the OMICRON variant. 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 general household 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 56.3% despite just recovering from two months of lockdown compared to the lowest of 31% in April 2020 during the enhanced MCO. Concurrently, the employment rate showed a positive development with unemployment rate of 4.2% in January 2022 compared to January 2021 at 4.9%.

4QCY21 soared strongly, recovered from 3QFY21 lockdown quarter, and further boosted year-end promotional sales. For 4QCY21 reporting season, almost all came in ABOVE expectation (DRBHCOM, MBMR, TCHONG, UMW), with only BAUTO and SIME coming in within expectation as we have already factored sufficient adjustments during earlier reviews.

1QCY22 is expected to drive slower on lower inventory before speeding up in 2QCY22 before ending of SST exemption. Looking over to 1QCY22, we expect most of the auto players to chart slower drive on lower inventory following the strong quarter in 4QCY21, and post-floods impact in December 2021 which disrupted certain suppliers’ operations. Nonetheless, 2QCY22 is expected to deliver better numbers as automakers rushed to deliver back-logged booking before the ending of SST exemption (by June 2022) to avoid cancellation by the consumers. The SST exemption extension to end-2022 is still in the proposal stage by MAA.

Source: Kenanga Research - 6 Apr 2022