• TIV in 2023 hit a record high 799.7k units on the back of a record-high total production volume (TPV) of 774.6k units. We believe the strong numbers were driven by pent-up demand as well as new launches. We expect 2024F TIV to soften to 625k given the lack of catalysts that could drive sales to another high. Maintain NEUTRAL on the sector; Top Pick: Bermaz Auto (BAUTO).

• Historic high 2023. With a TIV of 78.4k in December, TIV in 2023 came in at 799,731 units (+11% YoY), breaking the previous record of 721,177 units in 2022. We believe the sales volumes were mainly a result of pent-up demand supported by new launches during the year. Notably, 2H23 TIV was 18% higher than 1H23 TIV, considering the final push by companies to deliver the orders in the 2H.

• The production end also saw another record high, with TPV of 774.6k units in 2023 (+10% YoY). The YoY increase was mainly contributed by the local carmakers ie Proton (+7%) and Perodua (+18%), while for the nonnational carmakers, production of Toyota and Honda rose 2% and 6% YoY.

• A great year for EV. Sales of electrified vehicles (both hybrid and EV) or xEV rose by close to 70% to 38k units in 2023 which made up c.5% of total TIV. On the other hand, EV sales more than tripled (+286% YoY) to 10k units during the year, which made up 1.3% of total TIV from a meagre 0.4% in 2022. Within the EV sphere, BYD led the local EV adoption as it accounted for 37% of the total local EV market in 2023 – just nine months since its maiden foray into Malaysia. Coming to 2024, we expect more EVs to be on the road, joined by recently launched sub-MYR250k models such as Tesla’s Models 3 and Y, Neta’s V, and the Smart #1, which is distributed by Proton’s subsidiary Pro-Net. Regardless, we think the EV market share will continue to hover around current levels and only meaningfully increase post 2025 after the MYR100k pricing floor on CBU EVs expire and when local carmakers have their own EV offerings.

• Our 2024F TIV stands at 625k, which represents a 22% YoY decline from 2023’s high base. Our softer TIV assumption, which is in line with the 10- year average, is based on a lack of compelling factors for 2024 auto sales to book another high. Furthermore, we believe the robust car sales in the last two years also reflect delayed purchases of big-ticket items from the pandemic years ie 2020 and 2021, which was further boosted by the sales tax holiday. The launch of lower-priced models in the last two years such as the facelifted Perodua Myvi, the all-new Axia, and the 2022 Proton Saga also raised the demand for national cars.

• Remain NEUTRAL. We maintain our sector call, as we stay cautious on the outlook for 2024 – premised on a lack of catalysts to drive sales and earnings to a new high. The softening of order backlogs also suggests a more subdued expectation for 2024. We continue to favour BAUTO, which is our Top Pick given its c.10% yield and relatively resilient car sales.

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

Source: RHB Securities Research - 18 Jan 2024