Kenanga Research & Investment

Automotive - Soft April TIV on Scheduled Plant Maintenance

Publish date: Mon, 22 May 2023, 09:38 AM

April 2023 TIV of 46,583 units (-41% MoM, -19% YoY) retraced significantly from last month’s record number due to fewer working  days during the Hari Raya period when automakers took the opportunity to shut down their plants, at least for a week, for the annual routine maintenance. Nonetheless, cumulative 4MCY23 TIV of 239,183 units (+10%) is still on track to meet our full-year forecast of  720k units. Note that, Mar 2023 TIV was inflated by heavy deliveries ahead of the 31 Mar 2023 registration deadline to enjoy the exemption from the Sales and Services Tax (SST). Looking ahead, May 2023 TIV should pick up strongly as production normalises.

A detailed analysis of the passenger vehicle segment in April 2023 (-42% MoM, -19% YoY) are as follows:

Toyota’s (-25% MoM, +10% YoY) sales were mostly from its popular top models, namely the all-new Vios, Yaris, Corolla Cross  and Hilux. Based on sales projection, Toyota currently has 14k backlogged orders (3−6 months). Nissan (-26% MoM, -40% YoY) managed to entice buyers as evidenced by its fast-moving inventory but overall is still losing out in the all-new vehicles launching race. Currently, Nissan depends on the face-lifted Nissan Serena S-Hybrid, Navara, and Almera Turbo with 1k backlogged orders  (1−2 months). Mazda (-30% MoM, -23% YoY) sales were boosted by the exceptional response for its Mazda CX-30 CKD stocks which was recently rolled out on 8th March 2023, and continued to be driven by the CX-5 and CX-8. Based on sales projection,  Mazda currently has 4k backlogged orders (3−5 months). Proton’s (-36% MoM, +10% YoY) sales were mainly driven by the all-new X70 and X50 (3,293 SUV units sold, making up 36% of sales), and supported by the face-lifted Persona, Iriz, Exora and Saga  (collectively known as PIES). Based on sales projection, Proton currently has 40k backlogged orders (up to 12 months for the X50  and by 3 months for other models).

Perodua’s (-41% MoM, -26% YoY) sales were propelled by the all-new Perodua Alza (massive booking backlogs of 20k units) and  all-new Perodua Axia (another newcomer with 20k units in new bookings), with equally strong sales of the Bezza, MyVi, Ativa models. Based on sales projection, Perodua currently has more than 190k backlogged orders (by up to 12 months for the Alza, 4  months for the Ativa/Myvi, and up to 3 months for others). Honda (-41% MoM, -23% YoY) was driven by the City, Civic and BR-V  with exceptional response seen for the all-new HR-V which was launched on 14 July 2022. Overall, it is still affected by inventory  shortages, especially for the newer models. Based on sales projection, Honda currently has 12k backlogged orders (2−4 months).

We maintain our CY23 TIV projection of 720k units that will match the record level achieved in CY22. Our optimism is underpinned  by: (i) strong consumer confidence supported by a stable economy and a healthy job market, (ii) the affordability of motor vehicle  underpinned by stable new car prices thanks to the deferment of new excise duty regulations (that could have resulted in prices of  locally assembled vehicles increasing by 8%-20%) and potentially cheaper hire purchase cost with the introduction of reducing  balance method in the calculation of interest charges, and (iii) attractive new models. Our projection is about 11% higher than the  650k units projected by Malaysian Automotive Association (MAA).

The industry’s total booking backlogs have held up at a fairly strong level of 275k units compared to bookings of 300k units three  months ago despite heavy deliveries. This indicates sustained strong buying interest, lured by attractive new model launches by  players. We foresee a similar pattern throughout the rest of the year.

Our sector top picks are:

  • MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 190k units (almost half of its  CY23 target sales of 314k units), (ii) it being a good proxy to the mass-market Perodua brand given that it is the largest  dealer of Perodua vehicles in Malaysia, as well as its 22.58% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer  of Perodua vehicles, and (iii) its attractive dividend yield of about 7%.
  • BAUTO for: (i) its strong earnings visibility backed by an order backlog of 8k units for Mazda, Kia and Peugeot vehicles (half  of its CY23 target sales of 19k units), (ii) its premium mid-market Mazda brand that offers the best of both worlds, i.e.  products that appeal to the middle-income group and yet command superior margins than its peers in the mid-market  segment, and (iii) its attractive dividend yield of about 7%.

Source: Kenanga Research - 22 May 2023

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