January 2023 TIV of 49,461 units (-35% MoM, +19% YoY) only made up 7% of our full-year projection of 720k. However, we consider it as within expectation given that the long Chinese New Year holiday constrained activities during the month which should pick up from February. Our projection implies that 2023 TIV will sustain at the record 2022 level (versus a more conservative forecast of 650k (-9.8%) by the Malaysian Automotive Association (MAA)) underpinned by: (i) a pause in OPR hikes, (ii) stable new car prices, thanks to the deferment of new excise duty regulations (that could have resulted in prices of locally assembled vehicles increasing by 8-20%), and (iii) a healthy industry booking backlog of 350k units as at end-Jan 2023 (which is nearly half of our 2023 TIV projection of 720k units). We maintain OVERWEIGHT on the automotive sector. Our sector top picks are MBMR (OP; TP: RM4.60) and UMW (OP; TP: RM4.95).

January 2023 TIV of 49,461 units (-35% MoM, +19% YoY) only made up 7% of our full-year projection of 720k. The performance is within our expectation as activities were constrained by the long Chinese New Year holiday but should pick up from February. January 2023 TIV was stronger YoY against a low base a year ago on movement restrictions, but weaker MoM against a high base in December 2022 due to the usual bumper year-end sales.

A detailed analysis of the passenger vehicle segment in January 2023 (-36% MoM, +27% YoY) is as follows:

Proton’s (-20% MoM, +167% YoY) sales were mainly driven by the all-new X70 and X50 (3,874 SUV units sold, making up 34% of sales), and supported by the face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES). Based on sales projection, Proton currently has 55k backlogged orders (up to 12 months for the X50 and by 3 months for other models). Proton achieved a superb YoY growth as last year production was affected by the flood in Shah Alam area. Mazda (-29% MoM, +44% YoY) delivered all of its Mazda CX-30 CBU volume before switching toward local production (CKD) which is expected to be rolled out in 1QCY23. Overall volume continued to be driven by the CX-5 and CX-8. Based on sales projection, Mazda currently has 8k backlogged orders (3-5 months). Perodua’s (-31% MoM, +23% YoY) sales were propelled by the all-new Perodua Alza which gathered massive booking backlogs of 30k units with waiting time of more than 12 months, with equally strong sales of the MyVi and Ativa, and supported by the Axia, Myvi, and Bezza. Based on sales projection, Perodua currently has more than 220k backlogged orders (by up to 12 months for the Alza, 4 months for the Ativa/Myvi, and up to 3 months for others). Nissan’s (-33% MoM, -13% YoY) fast moving inventory enticed buyers away from its competitors but overall it is still losing out in the all-new vehicles launching race. Currently, Nissan depends on the face-lifted Nissan Serena S-Hybrid, Navara, and Almera Turbo with 1k backlogged orders (1-2 months). Honda (-55% MoM, -10% YoY) was driven by the City, Civic and BR-V with exceptional response seen for the all-new HR-V which was launched on 14 July 2022. Overall, it is still affected by inventory shortages, especially for the newer models. Based on sales projection, Honda currently has 20k backlogged orders (2-4 months). Toyota’s (-37% MoM, +1% YoY) sales were mostly from its exceptional top models, namely the all-new Vios, Yaris, Corolla Cross and Hilux. Based on sales projection, Toyota currently has 25k backlogged orders (3-6 months).

Looking forward, we project a more upbeat 2023 total industry volume (TIV) target at 720k units (+0%), compared to MAA’s 650k (- 9.8%), premised on strong reception to new models (at higher prices, resulting in better margins for auto players), a pause in the OPR hike and the deferment of new excise duty regulations resulting in stable car prices. In comparison, MAA is more cautious on the industry outlook as a whole, especially for the low-end segment, (we believe) due to the impact of high inflation on the lowincome group especially with the rising cost of basic necessities.

An encouraging sign to note is that the backlogs booking raced up to the tune of 350k units (as at end-Jan 2023) which is higher than 300k units three months ago, indicating strong order replenishment especially for attractive new models (see page 5) even in the absence the SST exemption. Additionally, vehicle sales will be supported by new battery electric vehicles (BEVs) which will enjoy SST exemption and other EV facilities incentives up to 2023 for CBU and 2025 for CKD.

Our sector top picks are:

i. MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 220k units, (ii) it being a good proxy to the mass-market Perodua brand given that it is the largest dealer of Perodua vehicles in Malaysia as well as its 22.58% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer of Perodua vehicles, and (iii) its Tier-1 OEM auto parts manufacturing certification.

ii. UMW for: (i) the mass-market marques under its vehicle dealership business, i.e. Toyota and Perodua, but not without high-margin models such as Perodua Alza and Toyota Veloz, (ii) strong earnings visibility at its vehicle dealership business backed by order backlogs of >250k units of vehicles, and (iii) it being a reopening play, given the pick-up seen in its heavy/industrial equipment business and manufacturing of aero-engine fan cases.

Source: Kenanga Research - 21 Feb 2023