New vehicle sales in Malaysia, also known as total industry volume (TIV), soared 18% MoM to 68,665 units in May 2024 as deliveries rose in lockstep with higher production in the absence of major festive holidays. With 5MCY24 TIV making up 44% of our full-year projection of 740k units (-8% YoY), we consider the number meeting our expectation. We believe while it will be business as usual for the affordable segment, fuel subsidy rationalisation will likely hurt the demand for mid-market models, giving rise to a two-speed automotive market locally in CY24. In general, the industry’s earnings visibility is still good, backed by a booking backlog of 200k units. Our sector top pick is MBMR (OP; TP: RM6.30) which is a good proxy to the affordable and fuel-efficient Perodua brand. It also offers an attractive dividend yield of about 7%.

TIV soared 18% MoM to 68,665 units in May 2024 as deliveries rose in lockstep with higher production in the absence of major festive holidays. With 5MCY24 TIV making up 44% of our full-year projection of 740k units (-8% YoY), we consider the number meeting our expectation. Looking ahead, we believe Jun 2024 TIV will be comparable to that of May 2024 on sustained strong deliveries backed by high production and steady sales backed by promotional campaigns.

A detailed analysis of the passenger vehicle segment in May 2024 at 62,862 units (+18% MoM, +11% YoY) are as follows:-

Overall, passenger vehicles segment soared MoM and YoY on full capacity production month with the absence of festivities holidays largely driven by strong sales from the national automakers i.e. Perodua and Proton.

Honda’s (+34% MoM, -2% YoY) 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). Competition-wise, Honda top-variants i.e. HR-V and CR-V are also seen to be losing market share to the newcomer, Chery. Perodua’s (+23% MoM, +35% 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, and Ativa models. Based on sales projection, Perodua currently has more than 100k backlogged orders (up to 12 months for the Axia, Alza and Bezza, and up to four months for the Ativa/Myvi models). Proton’s (+11% MoM, -8% YoY) sales were mainly driven by the all-new X70, X50 and X90 (2,207 SUV units sold, making up 18% 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 five months for other models).

Toyota’s (+7% MoM, +9% 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 (+7% MoM, -22% 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). Competition-wise, Mazda is seen to be losing market share to the newcomer, Chery (YTD 2024 sales at 6,420 units closing in to Mazda’s at 7,213 units). Nissan (+2% MoM, -25% YoY) is still losing out in the all-new vehicles race and mainly depends on its massive rebates to stay in competition. Currently, Nissan depends on the face-lifted Nissan Serena S-Hybrid, Navara, and Almera Turbo with 1k backlogged orders (1-2 months).

Business as usual for the affordable segment. For CY24, we project a TIV of 740k units (-8%) in-line with the forecast of Malaysia Automotive Association (MAA). We believe while it will be business as usual for the affordable segment, fuel subsidy rationalisation is more likely to hurt the demand for mid-market models (alternatively they can opt for EV or even down trade to a smaller car to cut their fuel bills), giving rise to a two-speed automotive market locally in CY24.

We believe it will be business as usual for the affordable segment as its target customers, i.e. the B40 group, will be spared the impact of the impending fuel subsidy rationalisation and also could potentially benefit from the introduction of the progressive wage model. The 13% pay rise for most civil servants in Dec 2024 will also partially restore their spending power eroded by high inflation. However, the same cannot be said for the mid-market segment as its target customers, i.e. the M40 group may hold back from buying a new car (or even down trade to a smaller car or switching to electric vehicles to cut their fuel bills) upon the introduction of fuel subsidy rationalisation.

In general, the industry’s earnings visibility is still good, backed by a booking backlog of 200k units as at end-May 2024. More than half of the backlog is made up of new models, alluding to how appealing new models are to car buyers. This trend is likely to persist throughout CY24 given a strong line-up of new launches.

More battery electric vehicles (BEVs) in the market. Vehicle sales will also be supported by new BEVs that enjoy SST exemption and other EV facilities incentives up until CY25 for CBU and CY27 for CKD. BEV new registrations have leapt from 274 units in CY21 to over 3,400 units in CY22 and 10,159 units in CY23, with 6,234 units for YTD April 2024 (quarterly reporting) and are on track to meet national target for EVs and hybrid vehicles of 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 3,951 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 more than 100k units (almost half of its CY24 target sales of 340k 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 23% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer of Perodua vehicles, and (iii) its attractive dividend yield of about 7%.

Source: Kenanga Research - 24 Jun 2024