New vehicle sales in Malaysia, also known as total industry volume (TIV) fell 3% MoM to 67,532 units in November 2024 as consumers wait to maximise savings during the December year-end promotion which typically offers the biggest discounts. With 11MCY24 TIV making up 91% of our full-year projection of 800K units (flat YoY), we consider the number meeting our expectation. Our CY24 TIV forecast that was maintained at 800K units (flat YoY) is proving to be unaggressive, as the Malaysia Automotive Association (MAA) had also in November revised upwards its target to this level. In general, the industry's earnings visibility is still good, backed by a booking backlog of 150K units. MBMR (OP; TP: RM6.80) and HLIND (OP; TP: RM15.50), are our sector picks, being good proxies to the affordable vehicles market and beneficiaries of fuel subsidy rationalization programme besides offering an attractive dividend yield of about 7% and 5%, respectively.

TIV fell 3% MoM to 67,532 units in November 2024 as consumers are waiting to maximise savings from the year-end promotion which typically offers the biggest discounts in December (typically, the month of December alone makes up 9−10% of annual TIV).

With 11MCY24 TIV making up 91% of our full-year projection of 800K units (flat YoY), we consider the number meeting our expectation. Our CY24 forecast of new vehicle sales in Malaysia, or total industry volume (TIV) that was maintained at 800K units (flat YoY) is proving to be unaggressive, as the Malaysia Automotive Association (MAA) had also in November revised upwards its target to this level. Looking ahead, we believe December 2024 TIV will be higher than November 2024 TIV driven by year-end promotional campaigns as automakers rush to clear this year's inventories.

A detailed analysis of the passenger vehicle segment in November 2024 at 62,425 units (-3% MoM, -6% YoY) are as follows:

Overall, passenger vehicles segment fell MoM as consumers are waiting to maximise savings from the year-end promotion which typically offers the biggest discounts in December.

Honda's (+13% MoM, -15% YoY) sales were driven by the City, Civic and all-new HR-V. Based on sales projection, Honda currently has 10K backlogged orders (2−4 months). Competition-wise, Honda's top variants i.e. the HR-V and CR-V are also seen to be losing market share to the newcomer, Chery. Meanwhile, Nissan (+7% MoM, -35% YoY) is still losing out in the all-new vehicles race and mainly dependent on its massive rebates to stay in competition. Currently, Nissan depends on the face-lifted Nissan Serena S-Hybrid, Navara, and Almera Turbo with 1K backlogged orders (1−2 months). Both Honda and Nissan have attractive year-end discounting promotion which set it apart from other automakers in November.

Proton's (-5% MoM, -2% YoY) sales were mainly driven by the all-new X70, X50 and X90 (3,187 SUV units sold, making up 27% of sales), and supported by the all-new S70, as well as the face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES).

Based on sales projection, Proton currently has 20K backlogged orders (up to 12 months for the X50 and by five months for other models). Proton has launched its most anticipated first EV, Proton e.MAS 7 on 16 December 2024. Perodua's (-6% MoM, -1% YoY) sales continued to be propelled by the all-new Perodua Alza and all-new Perodua Axia, with equally strong sales of the Bezza, MyVi, and Ativa models. Based on sales projection, Perodua currently has 90K backlogged orders (up to 6 months for the Axia, Alza and Bezza, and up to 2 months for the Ativa/Myvi models). Toyota's (-8% MoM, -19% YoY) sales were driven by its popular top models, namely the all-new Vios, Yaris, Corolla Cross and Hilux. Based on sales projection, Toyota currently has 20K backlogged orders (3−6 months). Mazda (-22% MoM, -49% YoY) was driven by the Mazda CX-30, the CX-5 and CX-8. Mazda CX- 5 and CX-8 are considered as te older generation and will be replaced with the newer generation CX-60 and CX-90 in CY2025.

Based on sales projection, Mazda currently has 1K backlogged orders (1−3 months). Competition-wise, Mazda is seen to be losing market share to newcomer, Chery (its YTD 2024 sales at 16,656 units have surpassed Mazda's 13,437 units).

A two-speed automotive market locally is being played out as expected in CY24 and will persist in CY25. It will be business as usual for the affordable segment as its target customers, i.e. the B40 and lower tier M40, will be spared the impact of the impending fuel subsidy rationalisation and could also potentially benefit from the introduction of the progressive wage model.

The pay rise for most civil servants (top management will receive a 7% rise, while those in professional and executive roles see a rise of 15%) in Dec 2024 will also partially restore their spending power eroded by high inflation. However, the same cannot be said for the premium segment as its target customers, i.e. the upper tier M40 and T15 may hold back from buying a new car, or they may down trade to a smaller car or switch to an EV to cut their fuel bills upon the introduction of fuel subsidy rationalisation.

The implementation of e-invoicing is having lesser impact to car sales than we initially believed. Automakers are racing to provide discounts and rebates to ensure sustained demand and lessen the impact of e-invoicing on consumer sentiment. E- invoicing essentially will cease the common practice of providing 100% hire purchase financing, circumventing the Hire Purchase Act 1967 whereby customers are required to make a minimum down payment of 10%.

In general, the industry's earnings visibility is still good, backed by a booking backlog of 150K units as at end-November 2024.

More than half of the backlog is made up of new models, alluding to the appeal of new models to car buyers. This trend is likely to persist in CY25 given a strong line-up of new launches.

More battery electric vehicles (BEVs) in the market. Vehicle sales will also be supported by new BEVs that enjoy SST exemption and other EV facilities incentives up until CY25 for CBU and CY27 for CKD. The new registration for BEVs leapt from 274 units in CY21 to over 3,400 units in CY22, 10,159 units in CY23, and almost 16,000 units for 9MCY24 (based on the Ministry of Transport's press release), or 3% of TIV. We expect more favourable incentives from the government which has set a national target for EVs and hybrid vehicles of 15% of TIV by CY30 and 38% by CY40. Meanwhile, the government will speed up the approval for charging stations. The number of proposed charging stations currently stands at 4,225 (3,354 built to date) should more than double to 10,000 by end-CY25.

Our sector top picks are MBMR and HLIND.

We like MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of more than 90K units (almost a third of its CY24 target sales of 350K units), (ii) being a good proxy to the mass-market Perodua brand given that it is the largest dealer of Perodua vehicles in Malaysia, as well as its 23% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer of Perodua vehicles, and (iii) its attractive dividend yield of about 7%. We also expect MBMR to benefit from the slew of new launches planned for Perodua (usually new models fetch higher margins), expansion of its dealership offerings through the Jaecoo brand and downtrading trend by mid-market buyers could drive a better demand for its affordable the Perodua and value-for-money Jaecoo brands.

We like HLIND for: (i) as it is a strong proxy to the booming gig economy given the critical role of motorised two-wheelers in executing online delivery transactions, (ii) for its association with the strong Yamaha motorcycle brand in Malaysia and the brand's market leader position in the local motorcycle segment, and (iii) for its strong war chest with a net cash of RM1.9b which could be deployed for earnings-accretive acquisitions. Its dividend yield is also attractive at 5%. We anticipate robust demand for the motorcycles market (to achieve record year of 680K units (+11%) in 2025, with Yamaha holding the lion's share of 50% as its target customers, i.e. the B40 & M40, will be spared the impact of the impending fuel subsidy rationalisation i.e. RON95 is expected to be priced based on a two-tier system in June 2025 whereby the T15 will be confined to unsubsidized pricing.

Source: Kenanga Research - 20 Dec 2024