• Top Pick: Bermaz Auto (BAUTO). September TIV totalled 58,032 units, bringing the 9M24 figure to 594k units while total production volume (TPV) for the month was 55.3k units. As anticipated, September’s TIV and TPV performances were weaker QoQ, mainly due to scheduled factory closure for maintenance. We keep our 2024 TIV assumption of 790k, which translates to a 1% YoY drop. We make no change to our NEUTRAL call for the sector.

• Weakest monthly TIV for the year. TIV for September was 58k units (-20% MoM, -15%YoY), bringing 9M24 TIV to 594k units (+3.9% YoY). On a MoM basis, September saw TIV weakness across major marques. Local carmakers Perodua and Proton chalked 32% and 12% MoM declines in sales, while Honda’s and Toyota’s dropped 21% and 9% MoM. The local carmakers recorded double-digit declines during the month, which was anticipated given the factory maintenance shutdowns which coincided with Malaysia Day holiday on top of a shorter working month.

• Weakness was also seen at the production end, as TPV saw a 26% MoM drop (-20% YoY) in September. The sharp MoM decrease was reflected across the major marques with national brands Proton and Perodua recording lower outputs during the month – down 16% and 37% MoM. Within the non-national segment, Honda and Toyota recorded MoM declines of 19% and 15%. However, we anticipate a pick-up in production in October – given the relatively longer working month.

• EV’s acceleration remains healthy. In 3Q24, new EV registrations in the country was 74% YoY higher to 5.1k units, bringing 9M24 numbers to 15.8k units (+114% YoY). This makes up 2.5% of total car registrations in 9M24, vs 1.2% in 9M23. BYD still leads local EV adoption as it accounted for 37.7% of the EVs sold in 9M24, while Tesla came second with a 27.1% share of the market. We do not expect the EV market share to significantly increase until after 2025, when the MYR100k pricing floor on CBU EVs expires and affordable EVs by local carmakers have entered the market.

• What to expect from Budget 2025? We anticipate the country’s automotive sector will remain focused on accelerating EV adoption. This will likely entail developing a broader EV ecosystem and placing a strong emphasis on incentives to encourage EV uptake, such as supporting the installation of public charging stations. On import and excise duty exemptions on CBU EVs, we think the tax holiday exemption for CBU EVs will not get extended beyond end-2025, as the emphasis will likely be on attracting original equipment manufacturers or OEMs to manufacture and assemble their EVs locally. With the recent debut of Proton’s first EV e.MAS 7 along with Perodua’s own EV expected by end-2025, we believe the Government will likely prioritise incentives to encourage the local assembly of CKD EVs.

• Remain NEUTRAL as we believe the sector is expected to see weaker TIV performance due to sales volume normalisation anticipated in 2H while uncertainties surrounding the implementation of a luxury tax and petrol subsidy rationalisation persist. Our 2024 TIV assumption of 790k anticipates 2H TIV to decline by 8% YoY. Our Top Pick is still BAUTO, due to its attractive valuations and higher-than-sector average dividend yield of c.10%.

• Key downside risks include softer-than-expected orders and deliveries, and resurgent supply chain issues. The opposite represents the upside risks.

Source: RHB Research - 17 Oct 2024