• Top Pick: Bermaz Auto (BAUTO). June TIV totalled 58k units, bringing the 1H24 figure to 390k units. As such, the Malaysian Automotive Association (MAA) has revised its 2024 TIV forecast upwards to 765k, from 740k. Although the MAA's new estimate implies a 4% YoY decrease, we maintain our TIV forecast at 740k units for this year – as backlogs decline and sales normalise. We make no change to our NEUTRAL call for the sector.

• Weakest monthly TIV for the year. TIV for June, at 58k, brought 1H24 TIV to 390k (+6.6% YoY). On a MoM basis, June saw TIV weakness across major marques. Local carmakers Perodua and Proton chalked 29% MoM and 11% MoM declines in sales, while Toyota’s dropped by 10% MoM. Honda, on the other hand, recorded a slight 3% MoM uptick. The local carmakers recorded double-digit declines during the month, mainly due to factory maintenance shutdowns on top of the Aidil Adha holiday. The weakness was also reflected at the production end, as total production volume (TPV) dropped 33% MoM, with major marques showing declines: Perodua (-38%), Proton (-32%), Toyota (-26%) and Honda (-21%). However, the pick-up in production will likely be seen in July – given the longer working month.

• EV’s acceleration remains impressive. In 1H24, new EV registrations in the country more than doubled YoY to 10.7k units, from 4.4k units in 1H23. This makes up 2.6% of total car registrations in 1H24, vs 1.2% in 1H23. Currently, BYD still leads local EV adoption as it accounted for 41% of the EVs sold in 1H24, while Tesla came second with a 29% share of the market. We do not expect EV market share to significantly increase until after 2025, when the MYR100k pricing floor on CBU EVs expires and affordable EVs by local carmakers have entered the market.

• MAA is now forecasting 2024 TIV of 765k, from 740k units. With the release of June TIV data, the MAA revised its 2024 TIV forecast to 765k (from 740k) which translates to a 4% YoY decline. With 390k units in 1H24 TIV, the MAA's 765k estimate implies 2H24 TIV of 375k, or a monthly TIV of 62.5k. Meanwhile, our 2024F TIV of 740k suggests 2H24 TIV to be 350k units, or a monthly TIV of 58.3k. Although we think that MAA's estimate is reasonable, we prefer to be rather conservative and keep our 2024 740k TIV estimate for now. That said, we are cognisant of the upside risks to our TIV assumption if 2H24 TIV performance turns out to be stronger than our projection.

• Remain NEUTRAL. We continue to believe the sector will see negative earnings growth this year, in line with its expected cyclical downturn. Additionally, there are insufficient drivers to maintain TIV at the current high levels, leading to an anticipated weaker TIV performance in the second half of the year. We maintain our NEUTRAL call on the sector, with BAUTO as our Top Pick.

• 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 - 19 Jul 2024