• Top Pick: Bermaz Auto (BAUTO). TIV for August amounted to 71.2k units (-2.3% YoY), bringing 8M24 TIV to 533k units (+5.9% YoY), while total production volume was at 74k (+9% YoY). With the anticipated weaker TIV performance in September due to a scheduled maintenance shutdown, we think sales are normalising in 2H, and may drop by 8% YoY. We make no change to our NEUTRAL sector weighting, as well as our 2024 TIV forecast of 790k units.

• Slight weakness in August. August TIV of 71,162 units (-0.9% MoM, -2.3% YoY) brought YTD TIV to 533,301 units (+5.9% YoY). Most of the major marques saw declines in unit sales, with Proton, Toyota and Honda recording decreases of 10%, 17% and 5% YoY. Meanwhile, Perodua recorded its highest ever monthly sales, at 34.7k units (+11.6 YoY). Excluding the largest national carmaker, TIV would have dropped by 13% YoY in August. Note that the strong YTD TIV performance was mainly contributed by passenger car sales, which grew 8% YoY while commercial vehicles sales contracted by 14%, being likely affected by the removal of the diesel subsidy.

• August’s total production volume (TPV) rose by 9% YoY and 5% MoM to 73,966 units. Both national carmakers charted MoM growth in production volume ie Proton and Perodua recorded 4% and 9% MoM increases in production. Perodua’s +9% MoM output rise was mainly due to its top two cheapest models, ie Axia and Bezza, where the number of units assembled jumped by 14% MoM and 31% MoM. Together, these two models accounted for 57% of Perodua’s total production in August. Among the non-national major marques, Honda posted an 8% rise in production after two consecutive months of declining output, while Toyota’s production volume slipped 2% MoM. As TPV growth outpaces TIV, this could translate to declining backlogs during the month. Note that, in 2Q, the backlogs of major marques were flattish QoQ, likely due to lower TPVs during the quarter.

• We anticipate weaker MoM TIV numbers in September mainly due to expected scheduled factory maintenance shutdowns by Perodua in September, which coincided with the recent long weekend of holidays related to Malaysia Day. Note that Perodua underwent a scheduled temporary factory closure twice this year, back in April and June. This led to MoM decreases of 16% and 17% in TIV, in April and June.

• We keep our NEUTRAL sector weighting as we expect TIV to likely soften in 2H24, in tandem with normalising sales volumes. Our 790k 2024 TIV assumption implies a 8% YoY decline in 2H. BAUTO remains to be our Top Pick, mainly due to its undemanding valuation as well as above sector average dividend yield of c.10%.

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

Source: RHB Securities Research - 20 Sept 2024