• Top Picks: Bermaz Auto (BAUTO) and Sime Darby (SIME). Following a likely record-breaking 2022, we think 2023 TIV could soften 14% YoY to 600k units. With supply chain woes continuing to ease, all eyes are on new orders, given the widespread expectation of slower economic growth. Excitingly, we are expecting to see many new EVs here, with new faces such as BYD’s Atto 3 and Great Wall Motor’s Ora Good Cat. BAUTO and SIME have the widest EV selections, positioning them to capture the growing EV adoption locally and regionally. Still NEUTRAL.

• Supply chain constraints no longer a concern. Globally, the auto chip shortage continues to abate. Domestically, most players are able to secure the semiconductors and components needed. As a case in point, the national marques have been producing at almost full capacity in recent months and will likely continue doing so in the coming months as they rush to fulfil Sales & Service Tax (SST)-exempt orders before end-Mar 2023. Only Tan Chong Motor, BAUTO, and SIME are experiencing some form of supply shortages. With China’s continued easing of COVID-19 restrictions, we think any remaining supply chain bottlenecks should continue to ease.

• All eyes on demand. After the SST exemption period ended, automotive orders have been gradually recovering MoM as consumers adapt to the SST-inclusive prices. We see this as an encouraging sign and expect new model launches and facelifts in 2023 to continue fuelling new orders. However, we continue to anticipate slower economic growth and possible excise duty reforms as potential dampeners to auto demand.

• EV segment continues to be a bright and exciting space. In 2023, we expect many more EV offerings locally. BMW is slated to offer the all-electric i7 and i5 EVs, and XM plug-in hybrid. Meanwhile, BYD is already raking in thousands of orders for its Atto 3 while BAUTO will also be launching the new Peugeot e-2008 and Kia PBV1 EVs. Toyota will also be introducing its first battery EV bZ4X. We are also expecting to see some new faces on the road, eg Ora Good Cat by Great Wall Motors. While not ready for 2023, Perodua will unveil its first hybrid EV in 2024, and Proton is expected to launch its first EV in 2027.

• 2023F TIV could soften to 600k from 2022F 700k units, in our view. The estimated 14% YoY decline is premised on slower economic growth in 2023 and the absence of a SST exemption. The 600k accounts for strong volumes in 1Q23 as companies rush to deliver SST-exempt orders before end-Mar 2023. To recap, the Malaysian Automotive Association or MAA is forecasting 2022 TIV at 630k units (2023F: 636k units). 11M22 TIV currently stands at 642k units.

• Still NEUTRAL on the sector. Premised on the aforementioned cautious outlook, we think that, beyond the strong deliveries in the near term, concerns over a slower 2023 could continue to weigh on sector sentiment. Our Top Picks are BAUTO and SIME.

• Key downside risks: Worsening component shortages, further weakening of the MYR, and worse-than-expected macroeconomic headwinds that may further soften orders. The opposite represents upside risks.

Source: RHB Research - 28 Dec 2022