• Top Pick: Bermaz Auto (BAUTO). The Malaysian Automotive Association (MAA) reported a TIV of 65,499 units (+31% YoY) in January. The strong TIV number is expected, as carmakers continue to offload their order backlogs. We continue to expect 2024F TIV to soften to 625k given the lack of catalysts that could drive sales to another high. Maintain NEUTRAL on the sector.

• Strong start to the year. January TIV came in at 65,499 units (+31% YoY, -17% MoM). The strong YoY increase was mainly driven by non-national mass market brand Honda (103% YoY) as well as national marques ie Perodua (+38% YoY) and Proton (+11% YoY). The MoM drop is expected given the seasonally weaker January sales, with most major marques experiencing weaker sales deliveries during the month.

• January total production volume (TPV) rose 30% YoY and 15% MoM. The strong YoY increase was driven by strong Honda (+69% YoY) and Perodua (+38% YoY) January production while other major marques also recorded YoY increases in production. Proton has started ramping up production of its new S70 sedan, with 2,362 units manufactured in January. With over 8,000 bookings currently, this should well support its economies of scale post the discontinuation of Exora model.

• Goodbye UMW, but not really. UMW was delisted on Feb 19 following Sime Darby’s (SIME) acquisition of 98.88% of UMW shares as of end-January. As a result, SIME emerges as a local automotive titan post consolidation of UMW. While we are neutral on the synergies in the short term, we believe the acquisition of UMW would result in increased earnings base for SIME moving forward. Our SIME’s valuation has factored in the acquisition of UMW.

• Our 2024F TIV remains at 625k despite the strong January TIV, which is expected as we believe the current strong sales merely reflects the carmakers catching up on order backlog clearance. Current TIV level is unlikely to be sustained as major marques such as Perodua and Toyota have seen declines in their order backlogs from 190k and 52k units in May 2023 to 128k and 28k in end-Dec 2023. Our TIV forecast implies a 22% YoY decline from 2023’s 800k TIV.

• Remain NEUTRAL. We anticipate 1Q to chart stronger YoY TIV, supported by the high order backlogs carried forward from last year, which we believe are unsustainable. Hence, we maintain our sector NEUTRAL call as we remain cautious on the TIV outlook for 2024 – premised on a lack of catalysts to drive sales and earnings to a new high.

• 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 - 23 Feb 2024