• Still OVERWEIGHT; Top Picks: Bermaz Auto (BAUTO) and UMW. March TIV of 78,849 units represented a new monthly record high, as it marked the last month to deliver orders exempted from the sales and service tax (SST). While future TIV may slightly soften against an SST- boosted high base, new model launches should support new orders and deliveries. We like BAUTO for its growth across all three marques and 9% FY24F (Apr) yield, and UMW as the key beneficiary of Toyota’s and Perodua’s new model launches.

• The end of SST-exempt deliveries. March TIV came in at 78,849 units (+7.6% YoY, +24% MoM), hitting a record high monthly TIV. The strong numbers are hardly surprising, as March tends to be a seasonally strong month, and it was also the last month for carmakers to deliver SST-exempt orders. Notably, Perodua (+20% YoY, +29% MoM) achieved a record high number of deliveries this month, partially boosted by SST-exempt orders.

• March total production volume (TPV) rose 27% YoY, 19% MoM. The strong YoY performance was largely driven by Proton (+65%) and Perodua (+33%), as supply chain constraints have significantly eased since Mar 2022. Perodua’s production of 32,771 units exceeded its monthly nameplate capacity of 29,000 units, likely thanks to extra shifts. Over at Proton, its Shah Alam plant continues to operate at full capacity while its Tanjung Malim plant’s utilisation rate stood at 44%. Interestingly, March marked the first month the all-new Proton X90 was produced. While the 14 units produced does not move the needle at Proton’s Tanjung Malim plant, the increased production of the X90 could lift the plant’s utilisation rate.

• New launches will drive new orders. We expect April TIV to be softer MoM against March’s record-high TIV, and as carmakers are no longer in a rush to deliver SST-exempt orders. Although 2Q23 TIV may also soften against 1Q23’s high base, we note that the strong orders seen throughout 1Q23 should still translate into robust TIV in 2Q-3Q23. It has been nine months since car buyers were able to place SST-exempt orders, and we think they have long adapted to the SST-inclusive prices. Furthermore, the new model launches this year (notably Perodua Axia, Proton X90, Toyota Vios) continue to drive new orders. We maintain our 2023F TIV of 680k.

• Still O/W. With a healthy order backlog and normalised supply chain, we think the sector offers earnings visibility. Given the falling raw material costs and easing supply tightness, input costs should gradually decline from 4Q22 levels – which should have already reflected 2022’s inflationary environment. In addition to earnings visibility, the sector offers attractive yields of 4-10%.

• Top Picks: BAUTO and UMW. Besides being a reliable dividend yielder (with FY24F 9% yield), BAUTO benefits from continued growth in volumes across all its marques. Kia’s and Peugeot’s new models should drive volume growth, while Mazda’s volume will be supported by the local assembly of the CX-30. We also like UMW as the prime beneficiary of strong orders driven by the launch of the Toyota Vios and Perodua Axia. Its aerospace segment continues to improve along with demand for air travel. It also offers a decent dividend yield of 4%. Key risks: Softer-than-expected orders and deliveries, and resurgent supply chain issues.

Source: RHB Research - 19 Apr 2023