• Still NEUTRAL; Top Pick: Bermaz Auto (BAUTO). According to the Malaysian Automotive Association (MAA), May TIV was 61,795 units (+33% YoY, 22% MoM), with total production volume (TPV) of 64,930 units (+32% YoY, 51% MoM). The strong MoM rebound was largely due to a seasonally softer April. Despite the lack of tax-exempt deliveries, May’s TIV matches the trailing 12-month (TTM) average of c.62k, suggesting robust underlying demand. However, given the lack of fresh catalysts to bring car sales to new highs, we keep to our call.

• Strong MoM rebound across the board. May’s TIV rose 33% MoM against a seasonally soft April, as it was a shorter working month, following the Aidil Fitri holidays. Notably, Proton achieved a strong MoM increase of 41%, likely boosted partially by the sales of the new X90. On a YoY basis, TIV rose 22%, mainly supported by the national marques – and this is reflected in their 61% passenger car market share vs May 2022’s 56%. Interestingly, BYD appeared in the TIV statistics for the first time, recording sales of 720 units in May.

• May TPV rose 51% YoY and 32% MoM. The MoM increase was quite strong across the major marques, with Proton and Perodua recording 63% and 52% increases. Toyota, Honda and Mazda also logged MoM growth of 55%, 36% and 61%. Perodua’s plant continued to operate at a high utilisation rate of 93%, with significant volume focused on the Bezza, Axia and Myvi – three of Perodua’s highest selling cars. Proton’s Tanjung Malim plant continued to operate at a low utilisation rate of 32%, partially due to softening X70 and X50 volumes, while its Shah Alam plant continued to run at full capacity.

• Current orders and deliveries remain robust, but can it sustain? The continued long waiting times for most Perodua, Toyota and Honda models suggest that there is still a healthy number of orders, largely fuelled by new car launches. Given the strong YTD deliveries and current orders on hand, we think that major marques will be able to achieve their 2023 sales targets and meet our 2023 estimates. We also remain confident in our 680k TIV estimate for the year. However, such strong deliveries and robust orders hardly come as a surprise to the market, which we think has already anticipated a strong 2023 given the resilient orders. With a lack of catalysts to boost car sales in 2024, and with the possibility of TIV normalising to low- 600k levels, we have recently turned less bullish on the auto sector.

• Still NEUTRAL. Despite an anticipated slowdown in car sales in 2024, we are of the view that the sector still offers attractive yields, making some stocks worth holding onto – eg UMW and MBM for the 4% and 10% yields. Most of the stocks are also fairly priced at this juncture, trading near their 5- year historical averages. Thus, we maintain our NEUTRAL call. Our sector Top Pick is still Bermaz Auto as we think that its brand-specific factors make it relatively more resilient. The cheaper CX-30 CKD should support Mazda volumes, while Kia and Peugeot new model launches will likely continue to drive incremental volume growth from a low base. We also like its 9% FY24F (Apr) yield. Key risks include softer-than-expected orders and deliveries, as well as resurgent supply chain issues.

Source: RHB Securities Research - 21 Jun 2023