New vehicle sales in Malaysia, also known as total industry volume (TIV), returned to a high gear in Oct 2023 with 74,896 units (+10% MoM, +21% YoY), driven by aggressive promotional campaigns and improved supply of automotive parts especially for Perodua. Cumulative 10MCY23 TIV of 646,840 units (+12%) beat our expectation; hence, we raise our CY23F TIV by 7% to 770k units from 720k units. Correspondingly, we raise MBMR’s FY23F and FY24F net profit forecasts by 3.4% and 3.0%, respectively, to reflect a higher Perodua sales volume and lift our TP for MBMR by 3% to RM4.85 from RM4.70. We believe a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy. The industry’s earnings visibility is strong, backed by a booking backlog of 235k units. Our sector top pick is MBMR (OP; TP: RM4.85), which focuses on the affordable segment. It also offers an attractive dividend yield of about 11%.

TIV returned to a high gear in Oct 2023 with 74,896 units (+10% MoM, +21% YoY), which is the second highest monthly TIV for the year, driven by aggressive promotional campaign and improved supply of automotive parts especially for Perodua. Cumulative 10MCY23 TIV of 646,840 units (+12%) beat our expectation due stronger-than-expected sales volumes across the board, especially for Perodua. The industry’s earnings visibility is still strong, backed by a booking backlog of 235k units that will keep the industry very busy for another 3-4 months. Looking ahead, we believe the strong Oct 2023 TIV momentum will extend into Nov 2023.

A detailed analysis of the passenger vehicle segment in Oct 2023 at 67,478 units (+10% MoM, +22% YoY), are as follows:

Mazda (+26% MoM, +83% YoY) was driven by exceptional response for its Mazda CX-30 CKD, the CX-5 and CX-8. Based on sales projection, Mazda currently has 4k backlogged orders (3−5 months). Toyota’s (+21% MoM, +18% YoY) sales were boosted by its recent range of promotions under the ‘Celebrate the Symphony of Lights’ banner, with increased sales for its popular top models, namely the all-new Vios, Yaris, Corolla Cross and Hilux. Based on sales projection, Toyota currently has 30k backlogged orders (3−6 months). Perodua’s (+17% MoM, +31% YoY) sales for the month were boosted by the improved automotive parts supply. Its sales continued to be propelled by the all-new Perodua Alza and all-new Perodua Axia, with equally strong sales of the Bezza, MyVi, Ativa models. Based on sales projection, Perodua currently has more than 155k backlogged orders (up to 12 months for the Alza and Bezza, 4 months for the Ativa/Myvi, and up to 3 months for others). Nissan (+16% MoM, +3% YoY) managed to entice buyers as evidenced by its fast-moving inventory, 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 (+12% MoM, +25% YoY) returned to glory with the all-new Honda WR-V and boosted its sales for the month with promotional campaign dubbed “Last Call Bonanza”. Overall, sales were driven by the City, Civic and all-new HR-V, although it was still affected by inventory shortages, especially for the newer models. Based on sales projection, Honda currently has 13k backlogged orders (2−4 months). Proton’s (+2% MoM, -3% YoY) sales were mainly driven by the all-new X70, X50 and X90 (3,169 SUV units sold, making up 26% 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).

Resilient demand for the affordable segment. With stronger-than-expected sales volumes across the board especially for Perodua, we raise our CY23F TIV by 7% to 770k units from 720k units, which is above 725k units projected by Malaysia Automotive Association (MAA). Correspondingly, to reflect Perodua’s strong performance, we raise MBMR’s FY23-24F net profit forecast by 3.4-3.0%, as we raise the respective full-year forecast to 325k units (from 314k units) and 330k units (from 320k units). As such, we also raise our TP for MBMR by 3.2% to RM4.85 from RM4.70 and maintain OUTPERFORM call.

On the other hand, we maintain our CY24F TIV of 710K units, which eases YoY due to the fuel subsidy rationalisation (diesel powered vehicles will be affected, with no explicit mention on the RON95 petrol which is positive to the sale of passenger cars, given that most passenger cars are powered by petrol), and a potential hike in new car prices from the increase in sales and services tax to 8% (from 6%). We believe a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy. We now see greater opportunities in the affordable segment as it will be less affected by the introduction of targeted fuel subsidy that may dent the demand for mid-market vehicles as it will erode spending power of the M40 group.

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.

The industry’s earnings visibility is still strong, backed by a booking backlog of 235k units, which delivery will spill over to CY24. More than half of the backlogs are from new model launches and we expect to see similar trends throughout the year. Meanwhile, excitement is building in the electric vehicle (EV) segment with the recent new launch of BYD Seal and Tesla Model 3 and supported by the growing numbers of EV charging infrastructure (see page 3).

Our sector top pick is MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 155k units (almost half of its CY23 target sales of 325k 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 11%.

Source: Kenanga Research - 20 Nov 2023