May 2023 TIV picked up momentum at 61,795 units (+33% MoM, +22% YoY) from a low base last month (due to fewer working days and plant shutdown for annual routine maintenance during the Hari Raya break). Cumulative 5MCY23 TIV of 300,978 units (+12%) is on track to meet our full-year forecast of 720k units. We maintain our CY23F TIV of 720k units which will match the record level achieved in CY22, underpinned by: (i) sustained consumer confidence, (ii) affordability of motor vehicles, and (iii) attractive new models. The industry’s earnings visibility is strong, backed by a booking backlog of 275k units which is unchanged from a month ago despite heavy deliveries. Our sector top picks are MBMR (OP; TP: RM4.70) and BAUTO (OP; TP: RM3.10), both with attractive dividend yields of more than 7%. Reiterate OVERWEIGHT.

May 2023 TIV picked up momentum at 61,795 units (+33% MoM, +22% YoY) from a low base last month (due to fewer working days and plant shutdown for annual routine maintenance during the Hari Raya break). Cumulative 5MCY23 TIV of 300,978 units (+12%) is on track to meet our full-year forecast of 720k units. Looking ahead, June 2023 TIV should track that of May on the same production level.

A detailed analysis of the passenger vehicle segment in May 2023 (+33% MoM, +23% YoY) are as follows:

Proton’s (+41% MoM, +41% YoY) sales were mainly driven by the all-new X70 and X50 (3,925 SUV units sold, making up 30% of sales), and supported by the face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES). Based on sales projection, Proton currently has 40k backlogged orders (up to 12 months for the X50 and by 3 months for other models). Honda (+40% MoM, +19% 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 12k backlogged orders (2-4 months). Perodua’s (+31% MoM, +31% YoY) sales were propelled by the all-new Perodua Alza (massive booking backlogs of 20k units) and all-new Perodua Axia (another newcomer with 20k units in new bookings), with equally strong sales of the Bezza, MyVi, Ativa models. Based on sales projection, Perodua currently has more than 190k backlogged orders (by up to 12 months for the Alza, 4 months for the Ativa/Myvi, and up to 3 months for others). Mazda (+25% MoM, +37% YoY) sales were boosted by the exceptional response for its Mazda CX-30 CKD stocks which was recently rolled out on 8th March 2023, and continued to be driven by the CX-5 and CX-8. Based on sales projection, Mazda currently has 6k backlogged orders (3-5 months). Nissan (+17% MoM, -18% YoY) managed to entice buyers as evidenced by its fast-moving inventory, but overall 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). Toyota’s (+15% MoM, +2% YoY) sales were mostly from its popular top models, namely the all-new Vios, Yaris, Corolla Cross and Hilux. Based on sales projection, Toyota currently has 14k backlogged orders (3-6 months).

We maintain our CY23 TIV projection of 720k units that will match the record level achieved in CY22. Our optimism is underpinned by: (i) strong consumer confidence supported by a stable economy and a healthy job market, (ii) the affordability of motor vehicle underpinned by 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 potentially cheaper hire purchase cost with the introduction of reducing balance method in the calculation of interest charges, and (iii) attractive new models. Our projection is about 11% higher than the 650k units projected by Malaysian Automotive Association (MAA).

The industry’s total booking backlogs have held up at a fairly strong level of 275k units which is unchanged from a month ago despite heavy deliveries. This indicates sustained strong buying interest, lured by attractive new model launches by players. We foresee a similar pattern throughout the rest of the year.

Our sector top picks are:

• MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 190k units (almost half of its CY23 target sales of 314k 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 attractive dividend yield of about 7%.
   
• BAUTO for: (i) its strong earnings visibility backed by an order backlog of 6.5k units for Mazda, Kia and Peugeot vehicles, (ii) its premium mid-market Mazda brand that offers the best of both worlds, i.e. products that appeal to the middle-income group and yet command superior margins than its peers in the mid-market segment, and (iii) its attractive dividend yield of about 8%.

Source: Kenanga Research - 21 Jun 2023