• Top Picks: Sime Darby (SIME) and Bermaz Auto (BAUTO). We think 2025 will see a more subdued automotive market, given the ongoing price competition in the non-national segment and softening order backlogs, while uncertainties over the luxury tax and petrol subsidy rationalisation persist. Hence, we remain NEUTRAL on the sector.
• National marques still have the lion's share. Perodua sold 358,102 units in 2024, ie a 8.4% rise from 330k units in 2023, while Proton saw a slight 2.2% decline in sales volumes, with 147.6k units delivered in 2024. Combined, the national carmakers still hold the largest share of Malaysia's TIV, at 62%. Among the non-national brands, some Chinese carmakers gained ground in 2024. Chery, which made its local debut in Jul 2023, was in third place within the non-national marques while BYD managed to be in the Top 10 list with its EV-only line-up.
• However, declining backlogs across major marques point to a softer 2025. Despite a strong 2024, we note that the backlogs of major marques like Perodua and Toyota continue to taper down. Perodua's order backlog is currently at 90k units, from 128k units back in Dec 2023, while Toyota's has dropped to 16k units from 28k units over the same period, signalling softer numbers in 2025.
• Anticipated surge in EV demand is likely immaterial to total TIV. As CBU EVs will possibly be significantly more expensive after 2025, we think a surge in EV sales volumes is likely to be seen this year. Choices of CKD EVs remain limited at present, as most EVs on the road are imported from China. As such, we anticipate a spike in demand for CBU EVs before the tax holiday ends. That said, the local EV market remains small - making up just 2.5% of car sales in 2024. Hence, it is unlikely that a surge in EV demand would materially move the TIV needle.
• We forecast a TIV of 730k units for 2025 (-11% YoY). We expect TIV to soften as the high base effect kicks in, and do not see any compelling factors for 2025 auto sales to stay at the current elevated levels. We think the decline will mainly be due to the non-national marques, which continue to face intensifying competition as a result of new entrants, ie mainly the China carmakers. The influx of new models flooding the market with heavy price discounting may prompt buyers to delay purchases in anticipation of further price cuts from both existing and new non-national marques, thereby destabilising the non-national segment. While EVs are not spared from competition with the rise of new models, their popularity remains limited, mainly due to pricing - with the CBUs subject to a MYR100k price floor.
• We maintain our NEUTRAL weighting for the sector, as we remain cautious in our outlook for 2025 due to ongoing price competition in the non-national segment and softening order backlogs. Uncertainties over the implementation of a luxury tax and petrol subsidy rationalisation also continue to persist. Our Top Picks are SIME and BAUTO. BAUTO offers attractive valuations and handsome dividend yields, while SIME is well-positioned for the RON95 rationalisation with its broad EV line-up, while 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 Research - 22 Jan 2025