RHB Investment Research Reports

Auto & Autoparts - Steering Through Uncertainties

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Publish date: Fri, 01 Nov 2024, 09:35 AM
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An official blog in I3investor to publish research reports provided by RHB Research team.

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  • Top Picks: Bermaz Auto (BAUTO) and Sime Darby (SIME). We continue to expect a weaker YoY TIV performance this year as sales volume normalisation takes place in 2H while policy-related uncertainties persist on top of increased competition in the non-national segment, in our view. We keep our 2024 TIV assumption of 790k, which implies a 2H TIV decline by 8% YoY. Stay NEUTRAL.
  • Budget 2025 – nothing new. Overall, we think Budget 2025 offers no surprises for the automotive sector given the absence of any new incentives including initiatives to encourage the installation of public charging stations. As of end-September, there are 3,171 public chargers installed nationwide. This is still a long way to go towards achieving the national target of 10k public charging facilities by 2025. We believe the lack of charging stations remains one of the impediments to EV take-up in Malaysia.
  • No news on import and excise duty exemptions on CBU EVs during Budget 2025, which means the tax holiday for CBU EVs will not get extended beyond end-2025 as we expected. Hence, we may see policy-induced demand for EVs before the expiry of the tax breaks. Note that for CKD EVs, the excise duty and sales tax exemption for CKD EVs will remain in force until end-2027. In the meantime, Perodua has been in discussion with the Ministry of Investment, Trade and Industry (MITI) to roll out its first EV which will be priced below MYR100k. With the recent debut of Proton’s first EV – the e.MAS 7 – along with Perodua’s own EV expected by end 2025, we believe the Government will likely prioritise incentives to encourage the local assembly of CKD EVs.
  • Competition intensifies in the non-national segment, with an influx of new brands flooding the market mainly the Chinese carmakers. Heavy price discounting seems to be the popular move among the new entrants resulting in existing brands following suit to defend their market share. Hence, we are aware that some buyers may delay their purchases in anticipation of further price reductions from both existing and new non-national marques, hence destabilising the non-national segment. While EVs are not spared from the competition with the rise of new models, they remain less popular – this is mainly due to pricing, with the CBUs subject to a MYR100k floor.
  • What to anticipate ahead? We reiterate that the sector may see moderating sales volumes given the cyclical nature of the automotive business. Hence, we believe 4Q24 TIV could soften YoY, given the normalisation of sales backlogs – even though 4Q tends to be a seasonally strong quarter (relative to other quarters) as carmakers push for more sales deliveries before the year’s end. Perodua may be an exception given its more affordable and value-for-money offerings. The non-national marques, on the other hand, should continue to face intensifying competition as a result of new entrants. Our 2024 TIV assumption of 790k remains, which implies a 2H TIV decline by 8% YoY. Our Top Picks are now BAUTO and SIME. We like BAUTO due to its attractive valuation and higher-than-sector average dividend yield while SIME is wellpositioned for the RON95 rationalisation with its broad EV line-up, and its stake in Perodua provides earnings protection amidst intensifying competition among the non-national marques.
  • 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 - 1 Nov 2024

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