• Top Pick: Bermaz Auto (BAUTO) for its relatively resilient car sales and 9% yield. August TIV came in at 72k units, bringing 8M23 TIV to 502k units. With this, we think another record-breaking year is very likely, and hence, we keep our 2023 TIV forecast of 725k. However, we maintain our NEUTRAL sector call as there is currently low visibility on car sales prospects for 2024 – we think it will soften YoY.

• Second-highest monthly TIV for 2023. August TIV of 72k brought YTD TIV to 502k units (+12.7% MoM, +6.1% YoY). August saw a strong MoM increase, mainly from the Japanese carmakers – Honda and Toyota, which rose by 30% and 23% – likely driven by their order backlogs. Perodua and Proton both posted single-digit MoM growth, at 4.6% and 9.4% each. Chinese EV carmaker BYD also recorded stronger sales this month with a 43% MoM rise. Total production volume (TPV) saw a slight 2% MoM uptick, after a strong 15% MoM rise in July. August TPV saw mixed results across the major marques – Perodua (+4%), Toyota (+4%), Proton (-4%), Honda (-5%), and Mazda (-5%).

• “Objects in mirror are closer than they appear”. Given the 8M23 TIV of 502k, our 725k estimate for 2023 conservatively assumes 56k units per month in September-December – lower than the trailing 12-month average monthly TIV of 64k. Therefore, we believe that another record-breaking year is possible, especially if the monthly TIV levels for the next four months are stronger than expected. We think the strong deliveries in 2H23 will be mainly supported by marques with large outstanding order backlogs (eg Perodua and Toyota), which are largely fuelled by new model launches (eg Perodua Axia and Toyota Vios). Our 725k estimate matches the Malaysian Automotive Association’s (MAA) 2023F TIV.

• Still lacking clarity on 2024 deliveries. Given that 2023 could be a second consecutive record-breaking year for TIV, and based on the lack of catalysts to support the high orders and deliveries, we think 2024 TIV will likely soften YoY – especially if 2023 TIV hits a record high. We are also expecting the order backlog of the major marques to gradually ease throughout 4Q23. While stronger EV adoption may provide an upside risk to 2024 TIV, we do not think this will be significant enough to move the needle.

• Our Top Pick is still BAUTO, as we like its 9% yield and we think its car sales will remain resilient relative to other marques. Despite the sector’s potentially record-breaking 2023F TIV, we maintain our view that 2024F TIV will likely soften YoY. Our channel checks with industry players indicate that the 2024 outlook remains hazy. Hence, we maintain our NEUTRAL stance on the sector, premised on an uncertain 2024.

• Key downside risks include softer-than-expected orders and deliveries, as well as resurgent supply chain issues. The opposite represents upside risks.

Source: RHB Securities Research - 21 Sept 2023