According to the Malaysian Automotive Association (MAA), TIV for May 2022 registered at 49,603 units (-12% MoM, +5% YoY) where MoM sales was affected by the shortened Hari Raya working month with most of the automotive plants’ workers taking a longer leave after two years of pandemic amid persistent shortage in chips and component shipment delay. Meanwhile, YoY sales charted a positive growth mainly due to lower base caused by the pandemic. Sales for June 2022 are still expected to race above May 2022 level amid persistent shortage of chips and components due to the significant orders backlog waiting to be fulfilled. 5MCY22 TIV of 265,656 units (+7%) came in at 44% of our target, within expectation. Maintain OVERWEIGHT with 2022 TIV target of 600k units (+18%).

We prefer players with industry-leading market position, and sustainable high-margin profit models such as MBMR (OP; TP: RM4.10) given their market leading position in the national marques space. We believe the player that benefits most from high-margin new launches is BAUTO (OP; TP: RM2.30) given that it has just added two new marques under its stable (Kia and Peugeot) with 18 new models including Mazda starting 4QCY21 until 2023. May TIV numbers is just a knee jerk reaction from the shortened working month with both MBMR and BAUTO still carrying significant back-log orders to clear.

TIV for May 2022 registered at 49,603 units (-12% MoM, +5% YoY). MoM sales was affected by the shortened Hari Raya month with most of the workers taking a longer leave after two years of pandemic amid persistent shortage in chips and component shipment delay. However, YoY sales charted positive growth mainly due to lower pandemic base. Sales for June 2022 is expected to race above May 2022 level amid persistent shortage of chips and components, driven by significant order backlog to be delivered coupled with the government commitment to absorb the SST for orders before 30th June 2022 and JPJ registration before 31st March 2023.

A detailed look at the passenger vehicles segment (-12% MoM, +3% YoY).

Toyota (+25% MoM, -7% YoY)’s sales were mostly from its exceptional top models namely all-new Toyota Vios, Yaris, Corolla Cross and Toyota Hilux with a boost in delivery MoM from better inventory level due to easing of lockdown in China. Based on sales projection, Toyota currently has 20k-30k backlog orders (3-5 months backlog).

Proton (+11% MoM, +6% YoY)’s sales were from the all-new X70 and X50 (3,319 SUV units sold making up 36% of sales), and supported by the face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES) and with a boost in delivery MoM from the same hike in parts procurement activity in China. Based on sales projection, Proton currently has 70k-80k backlog orders (up to 6 months for x50, while other models are up to 4 months).

Honda (-9% MoM, +8% YoY) driven by City, Civic and BR-V with exceptional response for the all-new City and all-new City Hatchback with a slowdown in MoM numbers as Honda was phasing out the out-going HR-V for the all-new HR-V launching. Based on sales projection, Honda currently has 12k-18k backlog orders (2-3 months backlog).

Nissan (-14% MoM, -16% YoY)’s suffered both MoM and YoY as its volume is driven by only one models, the all-new Almera and its inventory has also dried up from earlier buying spree by auto buyers on expectation SST-exemption ending especially with Nissan being one of the brands that have ample supply from previous stock-up activities. Based on sales projection, Nissan currently have 1k-2k backlog orders (1-2 months backlog).

Perodua (-26% MoM, +5% YoY) MoM was affected by shortage in parts and Hari Raya holidays. The shortage is expected to be alleviated in June 2022 with a longer working month. Perodua sales was driven by MyVi and Ativa and supported by the allnew Axia, Myvi, Bezza, and ARUZ (4,567 SUV units sold at 24% of sales). Based on sales projection, Perodua currently have more than 100k backlog orders (up to 5 months for Ativa/Myvi, while other models up to 3 months).

Mazda (-29% MoM, -6% YoY) drove lower MoM on stronger April base as shipment of CBU units which were earlier delayed mostly arrived in April 2022. Fresh CBU delivery is expected in the following months. Mazda sales was driven by the face-lifted CX-5 and all-new CX-8. Based on sales projection, Mazda currently have 6k-8k backlog orders (3-5 months backlog).

Maintain OVERWEIGHT with 2022 TIV target of 600k units (+18%). The sector is currently trading at trailing 12x PER which is at a 25% discount to pre-pandemic mean of 16x PER. We expect profits in subsequent quarters to gradually normalise to prepandemic levels on the back of sector earnings growth of 22% in FY23 which should justify sector PER to gradually reverting closer to the mean. Our call on the sector is driven by the re-opening of economic activities, and further boosted by buoyant recovery in car sales as evident from the growing number of back-logged bookings for popular models (up to 6 months), with stream of new higher-margin models launches. Positively, we expect sustainable car sales post-SST exemption period as we believe order cancellations would be minimal with demand outweighing the supply given the massive back-logged orders coupled with the government commitment to absorb the SST for orders before 30th June 2022, with JPJ registration before 31st March 2023. Additionally, Battery Electric Vehicles (BEVs) new launches are expected to be boosted by the sales tax exemption and other EV facilities incentives up to 31 December 2025 (for CKD and CBU up to 2023) to support development of the local EV industry. Our 2022 TIV target at 600k units (+18%) is in line with MAA’s 2022 TIV target.

Source: Kenanga Research - 22 Jun 2022