New vehicle sales in Malaysia, also known as total industry volume (TIV), shifted to a low gear in Sep 2023 at 68,156 units (-5% MoM, +5% YoY) as consumers held back from buying in the hope of measures that could bring down new car ownership cost in Budget 2024. Cumulative 9MCY23 TIV of 571,767 units (+11%) is on track to meet our full-year forecast of 720k units, which will match the record level achieved in CY22. We also maintain our CY24F TIV of 710k units. We believe a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy. The industry’s earnings visibility is still strong, backed by a booking backlog of 235k units, which is unchanged from a month ago. We now see greater opportunities in the affordable segment as it will be less affected by the potential RON95 petrol subsidy rationalisation down the road, which may dent the demand for mid-market vehicles as it will erode spending power of the M40 group. Our sector top pick is MBMR (OP; TP: RM4.70) that focuses on the affordable segment. It also offers an attractive dividend yield of about 12%.

TIV shifted to a low gear in Sep 2023 at 68,156 units (-5% MoM, +5% YoY) as consumers held back from buying in the hope of measures that could bring down new car ownership cost in Budget 2024 (which did not materialise). Cumulative 9MCY23 TIV of 571,767 units (+11%) is on track to meet our full-year forecast of 720k units. The industry’s earnings visibility is still strong, backed by a booking backlog of 235k units, which is unchanged from a month ago. Looking ahead, Oct 2023 TIV should pick up after a soft Sept 2023.

A detailed analysis of the passenger vehicle segment in Sept 2023 at 61,560 units (-5% MoM, +7% YoY), are as follows:

Nissan (-1% MoM, -21% YoY) managed to entice buyers as evidenced by its fast-moving inventory, but overall is still losing out in the all-new vehicles launching race. Currently, Nissan depends on the face-lifted Nissan Serena S-Hybrid, Navara, and Almera Turbo with 1k backlogged orders (1−2 months). Perodua’s (-7% MoM, +18% YoY) sales were propelled by the all-new Perodua Alza (massive booking backlogs of 10k units) and all-new Perodua Axia (another newcomer with 20k units in new bookings), with equally strong sales of the Bezza, MyVi, Ativa models. Based on sales projection, Perodua currently has more than 155k backlogged orders (up to 12 months for the Alza, 4 months for the Ativa/Myvi, and up to 3 months for others). Toyota’s (-10% MoM, +6% YoY) sales were mostly from its popular top models, namely the all-new Vios, Yaris, Corolla Cross and Hilux. Based on sales projection, Toyota currently has 30k backlogged orders (3−6 months). Proton’s (-12% MoM, -18% YoY) sales were mainly driven by the all-new X70, X50 and X90 (3,385 SUV units sold, making up 28% of sales), and supported by the face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES). Based on sales projection, Proton currently has 30k backlogged orders (up to 12 months for the X50 and by 3 months for other models). Honda (-16% MoM, -9% YoY) returned to glory with the all-new Honda WRV driving in 7,300 units in bookings, and it has delivered more than 3,300 units within a few months of launching. Overall, sales were driven by the City, Civic and all-new HR-V, although it was still affected by inventory shortages, especially for the newer models. Based on sales projection, Honda currently has 13k backlogged orders (2−4 months). Mazda (-26% MoM, +40% YoY)’s sales normalised on huge shipment delivery of Mazda 3 CBU from Japan, with sales to be driven by exceptional response for its Mazda CX-30 CKD, the CX-5 and CX-8. Based on sales projection, Mazda currently has 4k backlogged orders (3−5 months).

Resilient demand for the affordable segment. We maintain our CY23F TIV of 720k units, which will match the record level achieved in CY22 and is in-line with 725k units projected by Malaysia Automotive Association (MAA). On the other hand, we maintain our CY24F TIV of 710K units, which eases slightly YoY due to the fuel subsidy rationalisation (diesel powered vehicles will be affected, with no explicit mention on the RON95 petrol which is positive to the sale of passenger cars, given that most passenger cars are powered by petrol), and a possible 2% hike in new car prices from the increase in sales and services tax to 8% (from 6%). We believe a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy. We now see greater opportunities in the affordable segment as it will be less affected by the introduction of targeted fuel subsidy that may dent the demand for mid-market vehicles as it will erode spending power of the M40 group.

Our optimism is underpinned by: (i) strong consumer confidence supported by a stable economy and a healthy job market, (ii) the affordability of motor vehicle underpinned by stable new car prices thanks to the deferment of new excise duty regulations (that could have resulted in prices of locally assembled vehicles increasing by 8%−20%) and potentially cheaper hire purchase cost with the introduction of the reducing balance method in the calculation of interest charges, and (iii) attractive new models.

The industry’s earnings visibility is still strong, backed by a booking backlog of 235k units, which delivery will spill over to CY24. More than half of the backlogs are from new model launches and we expect to see similar trends throughout the year. Meanwhile, excitement is building in the electric vehicle (EV) segment with the recent new launch of BYD Seal and Tesla Model 3.

Our sector top pick is MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 155k units (almost half of its CY23 target sales of 314k 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 22.58% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer of Perodua vehicles, and (iii) its attractive dividend yield of about 12%.

Source: Kenanga Research - 19 Oct 2023