New vehicle sales in Malaysia, also known as total industry volume (TIV), fell slightly by 1% MoM to 71,162 units in August 2024 despite various promotions as buyers digested latest measures by the government which includes e-invoicing and civil servant pay hike. Nevertheless, with 8MCY24 TIV making up 72% of our full-year projection of 740k units (-8% YoY), we consider the number meeting our expectation. Our CY24 TIV projection is a tad more conservative than the 765k units projected by Malaysia Automotive Association (MAA) as we believe e-invoicing and petrol subsidy rationalisation in 2HCY24 will weigh down on vehicle sales. 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 which we have been seeing. In general, the industry’s earnings visibility is still good, backed by a booking backlog of 160k units. Our sector top pick is MBMR (OP; TP: RM6.30), a good proxy to the affordable and fuel-efficient Perodua brand. It also offers an attractive dividend yield of about 7%.

TIV fell slightly by 1% MoM to 71,162 units in August 2024 despite various promotions as buyers digested latest measures by the government which includes e-invoicing and civil servant pay hike. With 8MCY24 TIV making up 72% of our full-year projection of 740k units (-8% YoY), we consider the number meeting our expectation. Our CY24 TIV projection is a tad more conservative than 765k units projected by MAA as we believe e-invoicing and petrol subsidy rationalisation in 2HCY24 will weigh down on vehicle sales. Looking ahead, we believe September 2024 TIV will be comparable to August 2024 on various promotion as well as new launches such as the all-new Proton X70 (with early bird rebates of about RM7k).

A detailed analysis of the passenger vehicle segment in August 2024 at 65,637 units (+0% MoM, +0% YoY) are as follows:-

Overall, passenger vehicles segment came in flat both MoM and YoY despite various promotions as buyers digested latest measures by the government which includes e-invoicing and civil servant pay hike.

Perodua’s (+8% MoM, +12% 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 100k backlogged orders (up to 6 months for the Axia, Alza and Bezza, and up to 2 months for the Ativa/Myvi models). Honda’s (+7% MoM, -5% YoY) sales were driven by the City, Civic and all-new HR-V. Based on sales projection, Honda currently has 10k backlogged orders (2−4 months). Competition-wise, Honda’s top-variants i.e. HR-V and CR-V are also seen to be losing market share to newcomer Chery. Toyota’s (-6% MoM, -15% 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). Proton’s (-17% MoM, -10% YoY) sales were mainly driven by the all-new X70, X50 and X90 (3,224 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 20k backlogged orders (up to 12 months for the X50 and by five months for other models). Mazda (-25% MoM, -44% 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 2.5k backlogged orders (3−5 months). Competition-wise, Mazda is seen to be losing market share to newcomer, Chery (YTD 2024 sales at 9,689 units closing in to Mazda’s at 10,755 units). Meanwhile, Nissan (-29% MoM, -35% YoY) is still losing out in the all-new vehicles race and mainly dependent 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).

We believe there will be a two-speed automotive market locally in CY24. 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 could also potentially benefit from the introduction of the progressive wage model. The pay rise for most civil servants (top management will receive a 7% rise, while those in professional and executive roles see a rise of 15%) 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 they may down trade to a smaller car or switch to an EV to cut their fuel bills) upon the introduction of fuel subsidy rationalisation. Moreover, the implementation of e-invoicing is set to have a major impact on new car purchases especially in the mid-market segment, given that it will essentially cease the common practice of providing 100% hire purchase financing (under the Hire Purchase Act 1967, customers are required to make a minimum down payment of 10%).

In general, the industry’s earnings visibility is still good, backed by a booking backlog of 160k units as at end-August 2024, unchanged from a month ago. More than half of the backlog is made up of new models, alluding to the appeal of new models 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 battery electric vehicles (BEVs) that enjoy SST exemption and other EV facilities incentives up until CY25 for CBU and CY27 for CKD. The new registration for BEVs leapt from 274 units in CY21 to over 3,400 units in CY22, 10,159 units in CY23, and 6,617 units for the 1H 2024 (quarterly reporting). We expect more favourable incentive from the government that has set a national target for EVs and hybrid vehicles of 15% of TIV by CY30 and 38% by CY40. Meanwhile, the government will speed up the approval for charging stations. The number of charging stations in operation currently at 3,951 should almost triple to 10,000 by end-CY25.

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 a third 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 - 23 Sep 2024