• The Malaysian Automotive Association (MAA)’s March TIV was 73,222 units (+64% MoM, +13% YoY). 1Q22 TIV of 159,752 units made up 30% of our previous estimate of 540,000 (MAA: 600,000). While we still expect a softer TIV in 2H22, we revise our FY22F TIV to 580,000 from 540,000, (+14% YoY). Maintain NEUTRAL on the sector, as lingering concerns of 2H22 margin pressure and 2023 excise duty reform may weigh on sector sentiment. We favour MBM Resources for its sector-leading FY22F 7% yield.

• March TIV – a monthly record high. The national marques led the way with Perodua rising 54% MoM and Proton rising 35% MoM. Among the non- national marques, Honda stood out with a 75% MoM increase, and Mazda posted an impressive 367% MoM and 82% YoY jump, likely from securing sufficient CBU orders from Japan and Thailand amidst chips and supply shortages. In March, the national marques had 53% of the market share, down from the 59% pandemic-period average, likely because of strong Honda and Toyota sales in March.

• 1Q22 TIV rose 13% YoY, but Proton’s fell 21%. 1Q22 sales volume across major marques rose from 1Q21, where a series of movement restrictions impacted car sales. Notably, Proton’s 1Q22 sales were still down by 21%, which we attribute to its weak Jan/Feb 2022 sales, as production was hit by the Dec 2021 floods. For context, Proton’s production averaged 7,700 units in Jan/Feb 2022, compared to the 12,800 units in the months before the flood.

• Mar 2022 total production volume (TPV): 59,908 (+17% MoM, -4% YoY). Perodua’s TPV rose 17% MoM, led by MyVi (+29%), Axia (+22%), and Bezza (+17%). Proton’s TPV inched down 2% MoM, mostly weighed by the X50 and Persona production at the Tanjung Malim plant (-23%), while the Shah Alam plant showed a healthy 38% MoM recovery in production. Non- national marques – Toyota, Honda and Mazda – saw MoM increases in production.

• We raise our TIV assumption to 580,000 from 540,000 (MAA: 600,000), as 1Q22 TIV was stronger than expected, despite the Dec 2021 flood’s impact on Jan/Feb 2022 TIV. The strong 1Q22 TIV suggests a potentially stronger 2Q22 to come, as orders remain robust, with customers rushing to take advantage of the tax relief, and as car makers continue to ramp up production to meet demand. Even with a higher FY22F TIV, we are still cautious on 2H22, as some sales may be brought forward to 1H22.

• Still NEUTRAL, despite the higher TIV, as we believe there are lingering concerns on margin pressure in 2H22, and on the potential excise duty reform in 2023. While the reform may increase 2022 TIV, it would likely weigh on 2023 TIV. These lingering concerns may continue to cloud investor sentiment on the sector, in our view. We favour MBM Resources for its sector-leading FY22F yield of 7%.

• Downside risks to sector recovery: Persistent shortages of key components and tightening bank approvals for car loans – both of which may adversely impact car sales. With a mutating COVID-19 virus, we cannot rule out further rolling lockdowns ahead. A sharp weakening of the MYR may adversely impact margins.

Source: RHB Research - 27 Apr 2022