New vehicle sales in Malaysia, also known as total industry volume (TIV), met our expectation at 799,731 units (+11%) in CY23. For CY24, we project a TIV of 710k units (-11%) which is a tad lower than 740k units projected by Malaysia Automotive Association (MAA). We hold the view that the impending fuel subsidy rationalisation will likely hurt the demand for mid-market models, while remaining optimistic on the sales of affordable vehicles. The industry’s earnings visibility will be backed by a booking backlog of 200k 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%.

Dec 2023 TIV ended the year on a high note at 78,398 units (+9% MoM, +2% YoY), driven by year-end promotions especially by Honda (the only brand that recorded double-digit monthly growth). CY23 TIV of 799,731 units (+11%) met our expectation. The industry’s earnings visibility will be backed by a booking backlog of 200k units (compared to 220k units, a month ago, despite heavy deliveries), which will keep the industry busy for next 3-4 months. Looking ahead, we believe Jan 2024 TIV will hit a speed bump, tapering off from a seasonally strong Dec month.

A detailed analysis of the passenger vehicle segment in Dec 2023 at 70,908 units (+9% MoM, +3% YoY) is as follows:

Overall, passenger vehicles segment was driven by year-end promotions. Honda (+32% MoM, +38% YoY) shone with it all-new Honda WR-V coupled with “Sale on Sale” year-end promotional campaign targeting small and medium-sized enterprise (SME) employees. Overall, its sales were driven by the City, Civic and all-new HR-V. Based on sales projection, Honda currently has 15k backlogged orders (2−4 months). Proton’s (+2% MoM, -16% YoY) sales were mainly driven by the all-new X70, X50 and X90 (3,813 SUV units sold, making up 32% 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 31k backlogged orders (up to 12 months for the X50 and by 3 months for other models).

Perodua’s (-3% MoM, +0% 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 120k 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 (- 5% MoM, -22% YoY) managed to entice buyers as evidenced by its fast-moving inventory, but overall is still losing out in the allnew vehicles race. Currently, Nissan depends on the face-lifted Nissan Serena S-Hybrid, Navara, and Almera Turbo with 1k backlogged orders (1−2 months). Mazda (-5% MoM, -15% 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). Toyota’s (-8% MoM, -7% 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).

Resilient demand for the affordable segment. For CY24, we project a TIV of 710k units (-11%) which is closely in line with the 740k units projected by Malaysia Automotive Association (MAA). The industry’s earnings visibility is still strong, backed by a booking backlog of 200k units as at end-Dec 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 new launches of BYD Seal and Tesla Model 3 with expected introduction of locally-made 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. BEV new registrations had leapt significantly for the past two years (from 274 units in CY21 to over 3,400 units in CY22 and 10,159 units in CY23) 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.

Our sector top pick is MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 120k 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 - 18 Jan 2024