According to the Malaysian Automotive Association (MAA), 1HCY22 TIV of 331,386 units (+33%) came in within our expectation at 55% of our full-year forecast. Maintain OVERWEIGHT with 2022 TIV target of 600k units (+18%). TIV for June 2022 registered at 63,366 units (+28% MoM, >100% YoY) with MoM sales fueled by the SST exemption incentive which ended on 30 June 2022, with massive back-logged booking estimated at more than 400k units with a sliver of production recovery echoed by the gradual re-opening of China supply lines. Meanwhile, YoY sales surged more than 100% from low base due to the lockdown last year. Sales for July 2022 are expected to be maintained around June 2022 level on continued delivery of back-logged booking.

We prefer players with industry leading market position, and sustainable high-margin profit models. We like 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.

TIV for June 2022 registered at 63,366 units (+28% MoM, >100% YoY). MoM sales growth was fueled by the SST exemption incentive which ended on 30 June 2022 with massive back-logged booking estimated at more than 400k units with a sliver of production recovery echoed by the gradual re-opening of China supply lines. Meanwhile, YoY sales surged more than 100% from low base due to the lockdown last year. Sales for July 2022 are expected to be maintained around June 2022 level on continued delivery of back-logged booking.

A detailed look at the passenger vehicles segment (+31% MoM, >100% YoY).

Proton (+53% MoM, >100% YoY)’s sales were mainly driven by the all-new X70 and X50 (6,692 SUV units sold making up 47% of sales), and supported by the face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES) and with a record in delivery MoM as it benefitted the most from the hike in parts procurement activity in China. Based on sales projection, Proton currently has 90k backlog orders (up to 6 months for x50, while other models are up to 4 months).

Honda (+40% MoM, >100% YoY) driven by City, Civic and BR-V with exceptional response for the all-new City and all-new City Hatchback. Stronger MoM numbers came mainly from the clearing of its out-going Honda HR-V inventory for the launch of the all-new HR-V at 14th July 2022. Based on sales projection, Honda currently has 25k backlog orders (2-3 months backlog).

Toyota (+28% MoM, >100% 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 40k backlog orders (3-5 months backlog).

Perodua (+12% MoM, >100% YoY) was earlier affected by shortage in parts and the Hari Raya holidays. The shortage alleviated in June 2022 with a longer working month. Perodua sales was driven by MyVi and Ativa and supported by the all-new Axia, Myvi, Bezza, and ARUZ (4,271 SUV units sold at 20% of sales). Based on sales projection, Perodua currently have more than 200k backlog orders (up to 5 months for Ativa/Myvi, while other models up to 3 months).

Nissan (-37% MoM, >100% YoY) sales suffered driven by only one model, the all-new Almera and its inventory has also dried up from earlier buying spree by auto buyers on expectation SST-exemption ending. Based on sales projection, Nissan currently have 3k backlog orders (1-2 months backlog).

Mazda (-62% MoM, >100% YoY) drove lower MoM due to chip shortage and recovery is expected to come in July and August. Mazda sales was driven by the face-lifted CX-5 and all-new CX-8. Based on sales projection, Mazda currently have 11k 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 earnings 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. 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 (up to 9 months) coupled with the government’s 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 is at 600k units (+18%) compared to MAA’s 630k units (+24%). We have reservation on MAA’s target which we believe to be premature amid persistent shortage of chips and components, but a positive sentiment is a welcome relief. There is no adjustment to our stocks under coverage TP based on ESG which are given 3-star ESG rating as appraised by us

Source: Kenanga Research - 22 Jul 2022