• Top Pick: Bermaz Auto (BAUTO). The Malaysian Automotive Association (MAA) reported a TIV of 71,052 units (-10% YoY) in March. As expected, TIV in 1Q24 was higher YoY (+5%) due to backlog clearance and we anticipate weaker YoY quarters moving forward as normalisation of sales volumes takes place. We maintain NEUTRAL on the sector.

• March TIV came in at 71.1k units (-10% YoY, +11% MoM), due to last year’s high base as carmakers performed their final push for SST-exempt deliveries. This brought the YTD TIV to 202.2k units (+5% YoY). The MoM increase, however, was likely due to stronger deliveries pre-Aidilfitri festive season – mainly contributed by Perodua (+6%), Toyota (+30%), and Honda (+33%). This was offset by the 6% MoM decline from Proton.

• Total production volume (TPV) saw a 0.7% MoM uptick (-12% YoY) in February. The slight MoM increase was driven by mixed performance across major marques. The rise was contributed by Proton (+6.6%) and Honda (+4.3%) while Perodua and Toyota recorded MoM declines of 0.7% and 7.4%. Coming into 2Q, we expect TPV to be lower QoQ on the back of scheduled factory maintenance shutdowns by major marques while backlogs are continuing to taper off.

• EV makes up 1.3% of total TIV in 1Q24, which is flattish vs EV contribution in 2023. Within the EV sphere, BYD still leads the local EV adoption with 71% of the total local EV market in 1Q24 despite a slew of new EV models coming into the market, thanks to its competitive pricing. However, we think the EV market share will continue to hover around the current level and would only meaningfully increase post 2025 after the MYR100k pricing floor on CBU EV expires, and when the local carmakers have their own EV offerings.

• Remain NEUTRAL. While 1Q24 TIV already makes up 32% of our 2024 TIV forecast of 625k units, we believe the current TIV levels are not sustainable, given the lack of drivers to boost sales to a new high after two recordbreaking years. We believe normalisation of sales volumes should take place in the coming months as the backlog is anticipated to continue declining postthe record-high year. Hence, we maintain our TIV assumption as well as sector’s NEUTRAL call.

• 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 - 25 Apr 2024