New vehicle sales in Malaysia, also known as total industry volume (TIV), maintained its momentum in June 2023 at 62,569 units (+1% MoM, -2% YoY), driven largely by various new launches and the delivery of booking backlogs. Cumulative 6MCY23 TIV of 366,037 units (+10%) 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 and is fairly consistent with the recently revised target of Malaysian Automotive Association (MAA) of 725k units, 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, 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.

TIV maintained its momentum in June 2023 at 62,569 units (+1% MoM, -2% YoY), driven by various new launches and the delivery of booking backlogs. However, there was a significant reduction in Honda sales (-23% MoM, -35% YoY) on lower sales for the BRV which ceased production to make way for the all-new Honda WR-V which was launched in July. Cumulative 6MCY23 TIV of 366,037 units (+10%) is on track to meet our full-year forecast of 720k units. Looking ahead, July 2023 TIV should track that of June on a comparable production level.

A detailed analysis of the passenger vehicle segment in June 2023 (+1% MoM, -3% YoY) is as follows:

Toyota’s (+12% MoM, -11% 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). Proton’s (+6% MoM, -2% YoY) sales were mainly driven by the all-new X70 and X50 (4,670 SUV units sold, making up 34% of sales), and supported by the facelifted 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). Mazda (-5% MoM, +240% YoY) sales were boosted by the exceptional response for its Mazda CX-30 CKD which was recently rolled out on 8 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). Perodua’s (-9% MoM, +7% 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 (up to 12 months for the Alza, 4 months for the Ativa/Myvi, and up to 3 months for others). Nissan (-16% MoM, +8% 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). Honda (-23% MoM, -35% YoY) fell significantly on lower sales for BR-V which ceased production to make way for all-new Honda WR-V which was launched in July. Overall, sales were driven by the City, Civic and all-new HR-V, although still affected by inventory shortages, especially for the newer models. Based on sales projection, Honda currently has 12k backlogged orders (2-4 months).

Record year in CY22 poised to be repeated in CY23. We believe a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy. 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 the reducing balance method in the calculation of interest charges, and (iii) attractive new models. Our projection is closely in line with the 725k units projected by the MAA, which was recently revised upward from 650k units six months ago.

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) 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 - 24 Jul 2023