• Top Picks: Bermaz Auto (BAUTO) and Sime Darby (SIME). According to the Malaysian Automotive Association (MAA), TIV in Oct 2024 amounted to 69.9k units (+20% MoM, -8% YoY), bringing 10M24 TIV to 664k units. As we expect to see softer numbers in 4Q24, we make no change to our 2024 TIV assumption of 790k units, which translates to a 1% YoY drop. We also maintain a NEUTRAL weighting on the sector.

• TIV: Solid MoM recovery, but still weaker YoY. The auto sector’s TIV totalled 69.9k units in October, bringing YTD TIV to 664k units (up 2.4% YoY vs the 10M23 figure). On a MoM basis, October saw stronger data from major carmakers – led by Perodua (+42%), Toyota (+16%), Proton (+13%) and Honda (+3%). This was mainly due to a low base effect, as September was a weak month due to factory maintenance shutdowns on top of it being a shorter working month. However, on a YoY basis, there was an 8% decline in TIV – seen across non-national marques including Toyota (-18%), Honda (-17%), Mazda (-43%) and Nissan (-48%). Meanwhile, national brands posted relatively stable sales volumes, with Perodua’s dipping by a mild 0.3% while Proton saw a 0.5% uptick.

• Similar trend seen at the production end, as TPV rose 29% MoM but decreased by 4% YoY in October. The MoM recovery was reflected across the major marques, with national brands Proton and Perodua recording higher output numbers during the month – up 8% and 56% MoM. Within the non-national segment, Honda and Toyota recorded MoM increases of 20% and 23%. We may see stronger MoM outputs in the next two months as carmakers are making their final push in production before the year-end.

• MAA is now targeting 800k units of TIV for the year, reflecting a 4.6% upward revision from its previous 765k-unit forecast. This revised target translates to a flattish YoY growth, from 2023’s 799,731 units. MAA said the revision accounts for back orders, mainly from the national car manufacturers. While we do not rule out the possibility of this year’s TIV exceeding our 790k-unit forecast, we believe the stronger YoY TIV – which was mainly due to Perodua (+10% YoY YTD) – was already priced in by the market. This can be seen by MBM Resources’ (MBMR) strong share price performance, ie up by more than 45% YTD. Note that c.75% of MBMR’s 1H24 PBT stemmed from its 22.6% associate stake in Perodua.

• We retain our NEUTRAL weighting as we believe the sector may see moderating sales volumes, given the cyclical nature of the automotive business. Hence, 4Q24 TIV could soften YoY, on the normalisation of sales backlogs. Our 2024 TIV assumption of 790k remains, which implies a 2H decline of 8% YoY. Our Top Picks are still BAUTO and SIME. We like BAUTO due to its attractive valuation and higher-than-sector-average dividend yield, while SIME is well-positioned for the RON95 rationalisation with its broad EV line-up. SIME’s stake in Perodua also helps to insulate against earnings risks, amidst intensifying competition among the non-national marques.

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

Source: RHB Securities Research - 19 Nov 2024