• Top Pick: Bermaz Auto (BAUTO). The Malaysian Automotive Association (MAA) reported a TIV of 71.7k units (+23.5% MoM) in July, with total production volume (TPV) reaching 70.3k (+41.1% MoM). The stronger MoM performance was expected, coming from a low base as June performance was mainly dragged by maintenance shutdowns. We keep our 2024 TIV forecast of 740k units at this juncture. Keep NEUTRAL.

• July TIV came in at 71,730 units (+11% YoY, +24% MoM), bringing 7M24 TIV to 462,088 units (+7% YoY). The stronger MoM performance was anticipated, considering June’s low base mainly due to maintenance shutdowns that occurred during the period on top of the long working month in July. All major marques saw MoM increases, with Proton and Perodua rising by 39% and 35% while Toyota/Lexus and Honda fell 19% and 5%. Perodua maintains its position as the market leader YTD, with a market share of 43.7%, up from 41.3% last year. This increase suggests that Perodua may have captured some of Toyota’s market share, thanks to its affordable and value-for-money offerings. Honda managed to retain its 10% market share with a 16% rise in sales YTD, thanks to its aggressive marketing campaigns.

• July TPV rose 41% YoY and 5% MoM. Among the major marques, local carmakers saw the largest MoM growth as Proton and Perodua recorded a 55% and 53% MoM increase in production. Apart coming from a low base, Proton’s increase of output was contributed by the ramp-up of X70 production of 1,029 units, above its monthly average output of c.600 units. Units produced were its newly-launched X70 facelift, with starting price of MYR98.8k. On the other hand, major non-national carmakers’ performances were mixed with Toyota charting a 44% growth in production while Honda saw a slight MoM decline of 2%.

• Proton is ahead in the local EV race. Proton has recently announced its first EV model ie e.Mas 7, co-developed by Proton and its Chinese partner, Geely. Slated to be on sale from December onwards, we understand that e.Mas 7 will initially be marketed as a fully imported CBU EV, meaning it will not be priced below MYR100k due to the current price floor for CBU EVs until the end of 2025. Therefore, we do not anticipate this model to significantly impact Proton's sales at this time, considering the price floor and the still niche local EV market, which accounts for just 2-3% of national car sales. Although we find it reasonable to start with the sale of CBU units, we believe Proton will eventually need to manufacture the model locally to lower prices and support the national EV adoption agenda.

• Remain NEUTRAL. We believe the sector will see negative earnings growth this year, in line with its expected cyclical downturn. Despite YTD TIV being ahead of our 2024 forecast (at 62% of full-year estimate), we believe the sector lacks sufficient catalysts such as launches of new high-volume models to maintain TIV at the current high levels, leading to an anticipated weaker TIV performance in the second half of the year. As such, 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 - 21 Aug 2024