• Top Pick: Bermaz Auto (BAUTO). The Malaysian Automotive Association (MAA) reported a TIV of 68.7k units (+18% MoM) in May, with total production volume (TPV) reaching 74.2k (+30% MoM). The stronger MoM performance was no surprise due to the anticipated pick-up post Aidil Fitri festivities. We maintain our NEUTRAL call on the sector.

• May TIV came in at 68,665 units (+8.7% YoY, +18.4% MoM), bringing 5M24 TIV to 328,901 units (+8% YoY). The stronger MoM performance was expected, coming from a low base in April due to Aidil Fitri festivities. The pick-up in sales volumes was anticipated from major marques, with Perodua and Toyota/Lexus showing stronger MoM growth at 34.7% and 5.2% while Proton and Honda fell 8.0% and 2.5% MoM. Strong YTD Perodua sales (+19.6% YoY) brought national carmakers’ TIV share to 63% from 60% in 2023.

• On the production end, May TPV recovered 30% MoM (+14% YoY). Among the major marques, Perodua, which makes up 46% of the TPV, saw a 37% MoM increase while Honda, Toyota and Proton saw MoM growth of 41%, 31% and 10%. The TPV’s strong MoM growth is likely attributable to the same reasons for the strong MoM increase in TIV. Perodua’s plant ran at 118% utilisation rate during the month with Bezza being its main focus (28% of total production) as it is one of the models with higher backlogs. In general, we expect 2Q TPV to be lower QoQ on the back of Aidil Fitri festive holidays as well as scheduled factory maintenance shutdowns by the major marques.

• Our 2024F TIV revised to 740k. As YTD-May TIV posted an 8% growth, we now forecast a higher 2024 TIV of 740,000 units from 625,000 units, a 18% upward revision. We believe our previous assumption was too conservative given the stronger-than-expected TIV performance to date, thanks to stronger Perodua sales (+19.6%). We revise our 2024 Perodua sales assumption to 330k units from 250k units. Our revised 2024F TIV is in line with MAA’s TIV estimate for the year. This translates to a 7.5% YoY decline in this year’s TIV after two record-breaking years as we expect Perodua sales to be flattish YoY this year, with TIV ex-Perodua to decline YoY. We believe a meaningful decline will be seen in 2H as backlogs recede and sales volumes normalise. Note that excluding Perodua, YTD TIV only grew by 0.7% YoY.

• Remain NEUTRAL. While we make an upward revision to our 2024F TIV, we believe the sector will post negative earnings growth this year, in line with the sector cyclical downturn. Not only that, there is a lack of drivers to support TIV at its current levels, and as such, a weaker TIV performance is anticipated in 2H. We maintain our NEUTRAL call on the sector with BAUTO as our Top Pick.

• 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 - 24 Jun 2024