Investment Highlights

• We maintain NEUTRAL on the automotive sector on the back of softer sales prospects with a projection of 670k units in 2024F (11M2023: 715,849 units). Our conservative outlook is based on the normalisation of vehicle sales after the SST exemption expiry. Also, the rollout of targeted subsidy in 2024F is expected to affect consumers’ disposable income and consumption.
  
  However, for this year we expect vehicle sales to end on a high note, with strong chances of breaking 2022’s record 720k units. The healthy momentum in vehicle sales in 4Q2023 is envisaged to be supported by year-end sales and discounts as auto dealers clear out their inventory. The sector remains attractive with the launch of new models, including the Proton S70 sedan, Honda CRV, CKD-version of Kia Carnival and Maxus MIFA 9 EV. Also, Bermaz Auto recently launched the facelifted CX-3 and Mazda 2 models.

• Malaysian Automotive Association (MAA) November total industry volume (TIV) dropped by 4% MoM to 71,906 units. Nonetheless, the sector’s monthly performance is still relatively robust as it hit the 70k mark for the third time. The slight dip in TIV was dragged by weaker commercial vehicle sales, which declined by 10% MoM to 6,662 units, while the passenger segment inched downwards by 3% to 65,246 units. Also, national marques sales recorded softer declines of 2.5% for Proton and 5.3% for Perodua. On a YoY basis, TIV increased by 12% in November underpinned by growth in most models, particularly Mazda (+27%) and Honda (+23%). The growth, however, was partly offset by slightly weaker sales of Toyota/Lexus (-1.7%). Due to the strong sales in November, the TIV sales of 715,849 units in 11M2023 have already exceeded our 2023E forecast of 710,000 units. We believe that December will be an equally strong month.

• Rise in Perodua’s year-to-date (YTD) market share to 41.8% (3%-point YoY) with YTD sales of 299,115 units. Due to improved supply chain environment and production pick-up, Perodua successfully fulfilled its outstanding orders during the month. The robust YTD sales performance implies that our Perodua sales projection of 320k units is within reach as we are optimistic that Perodua will remain the preferred vehicle among domestic consumers. On the EV front, Perodua recently announced its target to have 20% share of total Malaysian auto sales by 2030F. We believe that this is achievable if the government remains committed to EV-related incentives and expansion of charging infrastructure in the country.

• Toyota cumulative market share marginally dropped to 13.6% (-0.5%-point YoY), albeit year-to-date (YTD) sales grew by 7.8% YoY to 97,705 units. Given the weaker monthly vehicle sales, UMW aims to improve its booking rates by offering special deals through its 'Drive into the New Year with Toyota' campaign in December. Also going forward, vehicle sales will be supported by enhanced customer service and accessibility with the recent opening of two outlets in Sabah.

• Honda’s year-to-date (YTD) market share inched downwards to 9.7% (-1.6%-point YoY). However, its monthly sales of 10,263 units remained strong (10% MoM, 23% YoY) thanks to the ongoing special promotions, which will last until end of this year. The newly launched Honda CR-V is anticipated to bring in more buyers and boost Honda’s sales prospects for 2024F. As of December 2023, more than 2,000 bookings were made with a waiting period of around 2-3 months.

• Mazda recorded a TIV of 1,534 units (-12.5% MoM, 27% YoY) with slightly higher market share of 2.5% (+0.5%-point YoY). Besides the launch of facelifted CX-3 and Mazda 2 models, Bermaz Auto is expected to launch an upgraded CX-5 model early next year, which will contribute to higher bookings that will support the momentum of Mazda’s vehicle sales.

• Proton’s cumulative market share up by 0.5%-point to 19.4%, marking 138,876 units of year-to-date (YTD) TIV sales. The recently launched S70 model recorded over 3,600 bookings, implying that it is well received by the market. Meanwhile, the Saga model remains as Proton’s best-selling car with YTD sales of 64,155 units. Going forward, we anticipate bright prospects for Proton as it looks into production expansion and exporting beyond the ASEAN region.

• Sub-par performance from Nissan. In November, Nissan recorded a mild improvement in vehicle sales of 882 units (+2.9% MoM, +8.5% YoY). Nonetheless, year-to-date (YTD) sales plunged by 28% YoY to 9,248 units with a smaller cumulative market share of 1.3% (-0.7%-point). We are cautious on Nissan due to the lack of new launches.

• Sector top pick. We continue to like BAuto for its attractive model rollouts and CKD model expansions. Dividend yield is also decent at 7%. We have a fair value of RM3.29/share for BAuto.

Source: AmInvest Research - 20 Dec 2023