New vehicle sales in Malaysia, also known as total industry volume (TIV), eased slightly sequentially though still higher than a year ago in Nov 2023 with 71,908 units (-4% MoM, +10% YoY) as car buyers were torn between enticing year-end promotions and an attractive line-up of new models in 2024. Cumulative 11MCY23 TIV of 718,748 units (+12%) is within our expectation. We maintain our CY23F TIV of 770k units, which is above 725k units projected by Malaysia Automotive Association (MAA). For CY24F, we project a TIV of 710k units (down 7.8% from an estimated 770k units in CY23). We acknowledge that the impending fuel subsidy rationalisation is likely to hurt the demand for midmarket models, while remaining optimistic on vehicle sales in the affordable segment. The industry’s earnings visibility is still strong, backed by a booking backlog of 220k units. Our sector top pick is MBMR (OP; TP: RM5.50), which focuses on the affordable segment. It also offers an attractive dividend yield of about 11%.

Nov 2023 TIV eased slightly sequentially though still higher than a year ago in Nov 2023 with 71,908 units (-4% MoM, +10% YoY) as car buyers were torn between enticing year-end promotions and an attractive line-up of new models in 2024. Cumulative 11MCY23 TIV of 718,748 units (+12%) was within our expectation. The industry’s earnings visibility is still strong, backed by a booking backlog of 220k units that will keep the industry very busy for another 3-4 months. Looking ahead, we believe Dec 2023 TIV will hit another speed bump on short production month from extended festive holidays.

A detailed analysis of the passenger vehicle segment in Nov 2023 at 65,246 units (-3% MoM, +11% YoY), are as follows:

Honda (+10% MoM, +23% YoY) returned to glory with the all-new Honda WR-V. 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 15k backlogged orders (2−4 months). Nissan (-1% MoM, +5% YoY) managed to entice buyers as evidenced by its fast-moving inventory, but overall is still losing out in the all-new vehicles race. Currently, Nissan depends on the face-lifted Nissan Serena S-Hybrid, Navara, and Almera Turbo with 1k backlogged orders (1−2 months). Perodua’s (-3% MoM, +8% YoY) 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 140k backlogged orders (up to 12 months for the Alza and Bezza, 4 months for the Ativa/Myvi, and up to 3 months for others). Proton’s (-3% MoM, +8% YoY) sales were mainly driven by the all-new X70, X50 and X90 (3,048 SUV units sold, making up 26% of sales), and supported by the all-new S70, as well as face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES). Based on sales projection, Proton currently has 31.1k backlogged orders (up to 12 months for the X50 and by 3 months for other models). Toyota’s (-7% MoM, -4% YoY) sales were driven by its popular top models, namely the all-new Vios, Yaris, Corolla Cross and Hilux. Based on sales projection, Toyota currently has 20k backlogged orders (3−6 months). Mazda (-12% MoM, +30% 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 3k backlogged orders (3−5 months).

Resilient demand for the affordable segment. We maintain our CY23F TIV of 770k units, which is above 725k units projected by Malaysia Automotive Association (MAA). For CY24F, we project a TIV of 710k units (down 7.8% from an estimated 770k units in CY23). The industry’s earnings visibility is still strong, backed by a booking backlog of 220k units as at end-Nov 2023. More than half of the backlog is made up of new models, alluding to how appealing new models are to car buyers. We expect a similar trend in CY24, given an equally strong line-up of new launches during the year. Meanwhile, excitement is building in the electric vehicle (EV) segment with the recent new launches of BYD Seal and Tesla Model 3 with expected introduction of locallymade first national EV (i.e. Perodua and Proton) in CY25.

We believe a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy 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.

However, we acknowledge that the impending fuel subsidy rationalisation is likely to hurt the demand for mid-market models, while remaining optimistic on vehicle sales in the affordable segment as the buyers, i.e. the B40 group which is its main target market, will be spared the impact of subsidy rationalisation, and also could potentially benefit from the introduction of the progressive wage model.

More battery electric vehicles (BEVs) in the market. Additionally, vehicle sales will be supported by new BEVs that enjoy SST exemption and other EV facilities incentives up to CY25 for CBU and CY27 for CKD. BEVs’ new registration had leapt significantly for the past two years (from 274 units in CY21 to over 3,400 units in CY22 and 9,000 units by Nov 2023) and is on track to meet national target for EVs and hybrid vehicles which are 15% of total industry volume (TIV) by CY30, and 38% of TIV by CY40. Meanwhile, the government’s pledge to enable charge point operators (CPOs) to secure faster approvals for installation provides comfort as currently only 1,434 EV charging stations have been built to-date (see page 3).

Our sector top pick is MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 140k units, which is equivalent to almost half its CY24 sales target of 330k 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 - 21 Dec 2023