• 4Q23 sector results met expectations, with three counters under our coverage posting in-line results and one below expectations. Despite the strong January TIV, we continue to anticipate 2024 having a meaningful decline in TIV given the lack of catalysts to bring it to another high. Maintain NEUTRAL; Top Pick: Bermaz Auto (BAUTO).

• Generally, the performance of the auto sector was in line with expectations as Sime Darby (SIME), MBM Resources (MBM) and BAUTO met expectations, while Tan Chong Motor (TCM) continued to miss after recording a wider loss. SIME concluded its 1HFY24 (Jun) with solid results, backed by stronger YoY contributions from the automotive and industrial segments. Its auto sales volume in Malaysia and China recorded a 54% and +16% jump YoY, offset by lower ASPs in China, due to the ongoing stiff price war. Its industrial segment continued to chart stronger earnings with the Australasia market still being the biggest contributor, thanks to SIME’s recent acquisitions of Onsite Rental and Cavpower Group. UMW’s contribution to SIME’s 2QFY24 earnings was negligible, as only two weeks of earnings were recognised post acquisition. MBM’s FY23 earnings were also in line, recording a 37% rise, thanks to the stronger contribution from Perodua (+35% YoY) as the national carmaker charted record-high sales volume of 330k units (+17% YoY) during the year. BAUTO largely met our expectations, and is on track to achieve another record-high earnings this year – we believe a special dividend will likely be declared.

• We continue to forecast 2024 TIV of 625k despite the strong January TIV, which was expected as we believe the current strong sales merely reflect carmakers catching up on order backlog clearance. The current TIV run rate is unlikely to be sustained as major marques such as Perodua and Toyota have seen declines in their order backlogs from 190k and 52k units in May 2023 to 128k and 28k as at end-Dec 2023. Our 2024 TIV forecast implies a 22% YoY decline from 2023’s 800k.

• Outlook. Despite anticipating a weaker TIV YoY, we believe 1Q24 earnings will be stronger YoY due to order backlog clearance by carmakers, but weaker QoQ due to seasonality. The easing backlog of major marques such as Perodua and Toyota supports our thesis that TIV in 2024F will likely soften YoY, especially after the two consecutive record-high years ie 2022 and 2023.

• Keep NEUTRAL on the sector, premised on a weaker TIV performance as the normalisation of sales volume takes place. Our Top Pick is still BAUTO, as we continue to like its c.10% dividend yield and believe its car sales should remain resilient vs other marques.

• 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 - 18 Mar 2024