New vehicle sales in Malaysia, also known as total industry volume (TIV), maintained its momentum in Jul 2023 at 63,676 units (+2% MoM, +28% YoY), driven largely by various new launches and the delivery of booking backlogs. Cumulative 7MCY23 TIV of 429,807 units (+13%) 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 Malaysian Automotive Association (MAA) target of 725k units, underpinned by: (i) sustained consumer confidence, (ii) affordability of motor vehicles, and (iii) attractive new models. The industry’s booking backlog has eased to 235k units (from 275k units a month ago) but is still significant enough to provide earnings visibility to players. 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 Jul 2023 at 63,676 units (+2% MoM, +28% YoY), driven by various new launches and the delivery of booking backlogs. Perodua delivered a strong number (+26% MoM, +55% YoY) as it returned to full production after a short working month in Jun 2023 on the back of two consecutive Eid-ul public holidays, while Honda (+19% MoM, +13% YoY) was back in the game with its all-new Honda WR-V, replacing the ageing Honda BR-V. Cumulative 7MCY23 TIV of 429,807 units (+13%) is on track to meet our full-year forecast of 720k units. The industry’s booking backlog has eased to 235k units (from 275k units a month ago) but is still significant enough to provide earnings visibility to players. Looking ahead, Aug 2023 TIV should track that of Jul on a comparable production level and National Day sales promotions by certain automakers.

A detailed analysis of the passenger vehicle segment in Jul 2023 (+4% MoM, +30% YoY) is as follows:

Perodua’s (+26% MoM, +55% YoY) sales were propelled by the all-new Perodua Alza (massive booking backlogs of 15k 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 170k backlogged orders (up to 12 months for the Alza, 4 months for the Ativa/Myvi, and up to 3 months for others). Honda (+19% MoM, +13% YoY) returned to glory with the all-new Honda WR-V which was launched in July replacing the ageing Honda BR-V. 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 10k backlogged orders (2-4 months). Nissan (+2% MoM, -29% 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 (-1% MoM, +32% 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 10k backlogged orders (3-6 months). Proton’s (-6% MoM, +18% YoY) sales were mainly driven by the all-new X70, X50 and X90 (4,297 SUV units sold, making up 33% of sales), and supported by the face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES). Based on sales projection, Proton currently has 30k backlogged orders (up to 12 months for the X50 and by 3 months for other models). Mazda (-8% MoM, +39% YoY) sales were boosted by the exceptional response for its Mazda CX-30 CKD which was 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 4k backlogged orders (3-5 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.

Our sector top picks are:

• MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 170k 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 4.5k 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 Aug 2023