7MCY22 TIV of 380,595 units (+48%) as compiled by Malaysian Automotive Association (MAA), came in within our expectation at 63% of our full-year forecast. We maintain OVERWEIGHT on the automotive sector and keep our 2022 TIV assumption of 600k units (+18%) (which is a tad more conservative as compared with MAA’s forecast of 630k). The July 2022 TIV of 48,922 units were >5x that of the pandemic-stricken same period a year ago, but eased 23% MoM from a high base in June 2022. Recall, in June 2022, car buyers rushed to lock in their purchases ahead of the expiry of the SST exemption deadline on 30 June 2022 (The Ministry of Finance only announced some “leeway” on 20 June 2022, i.e. allowing buyers who make their bookings latest by 30 June 2022 and complete the registration by 31 March 2023 to still enjoy the SST exemption). Moving forward, TIV over the short term will continue to be anchored by booking backlogs to the tune of some 400k units (mostly vehicles of newer models that are currently out of stock). In terms of our sector top picks, we like MBMR (OP; TP: RM4.10) given its market leader’s position in national marques and BAUTO (OP; TP: RM2.30) for its attractive new models in the pipeline.

TIV for July 2022 registered at 48,922 units (-23% MoM, +552% YoY). MoM sales growth decreased from a high base in June 2022. Recall, in June 2022, car buyers rushed to lock in their purchases ahead of the expiry of the SST exemption deadline on 30 June 2022 (The Ministry of Finance only announced some “leeway” on 20 June 2022, i.e. allowing buyers who make their bookings latest by 30 June 2022 and complete the registration by 31 March 2023 to still enjoy the SST exemption). Currently, booking backlogs in the industry stand at some 400k units (mostly vehicles of newer models that are currently out of stock). Meanwhile, YoY sales surged 552% from a low base due to the lockdown last year. Sales for August 2022 are expected to be maintained around July 2022 level.

A detailed analysis on the passenger vehicles segment (-24% MoM, +716% YoY):

Mazda (+127% MoM, +454% YoY) drove faster than their competitors on massive recovery in production level with its faster stock up activities starting July 2022. Mazda sales were driven by Mazda CX-5 and face-lifted CX-8. Based on sales projection, Mazda currently have 10k backlog orders (by 3-5 months).

Nissan (+57% MoM, +608% YoY) recorded positive growth as its inventory backlog was lower than the others, with faster stock-up activities which was driven by only one model, the all-new Almera. Based on sales projection, Nissan currently have 2k backlog orders (by 1-2 months).

Perodua (-13% MoM, +2701% YoY) experienced inventory shortages and phased out the old Alza which was replaced by the newer All-New Alza which was launched in 17th July 2022 with massive backlog of 39k units, as only 4k were delivered. Perodua’s sales were driven by MyVi and Ativa and supported by the all-new Axia, Myvi, Bezza, and Alza. Based on sales projection, Perodua currently have more than 200k backlog orders (by up to 5 months for Ativa/Myvi, and up to 3 months for other models).

Proton (-22% MoM, +483% YoY)’s sales were mainly driven by the all-new X70 and X50 (6,218 SUV units sold making up 56% of sales), and supported by the face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES). Based on sales projection, Proton currently has 80k backlog orders (by up to 6 months for x50, and by 4 months for other models).

Honda (-31% MoM, +806% YoY) was driven by City, Civic and BR-V with exceptional response for the all-new all-new HR-V which as launched on 14th July 2022. Overall, it is still affected by inventory shortages especially for the newer models. Based on sales projection, Honda currently has 20k backlog orders (by 2-3 months).

Toyota (-33% MoM, +437% YoY)’s sales were mostly from its exceptional top models namely all-new Toyota Vios, Yaris, Corolla Cross and Toyota Hilux. Overall, it is still affected by inventory shortages especially for the newer models. Based on sales projection, Toyota currently has 35k backlog orders (by 3-5 months).

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 pre pandemic levels on the back of sector earnings growth of 23% 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 (by up to 9 months) coupled with the government’s commitment to absorb the SST for orders before 30th June 2022, and 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 for which are all given 3-star rating as appraised by us (see page 6).

Source: Kenanga Research - 22 Aug 2022