RHB Investment Research Reports

Auto & Autoparts - FY23 Outlook Increasingly Priced In; Now NEUTRAL

Publish date: Fri, 02 Jun 2023, 10:30 AM
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An official blog in I3investor to publish research reports provided by RHB Research team.

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  • Top Pick: Bermaz Auto. Although we still think that 2023 will bring near record TIV levels and strong corporate earnings, these factors are largely priced in. As such, the market could further factor in the prospect of a softer 2024F. With orders normalising and waiting periods shortening, we think investor sentiment towards auto stocks could soon turn cautious. We downgraded our calls for UMW and MBM Resources to NEUTRAL from Buy – but investors should still hold for their 4% and 10% yields. Premised on this, we also cut our sector rating to NEUTRAL from Overweight.
  • 1Q23 results met expectations, with the exception of Tan Chong Motor (which recorded surprising losses) and Bermaz Auto (which outperformed estimates). At various analyst briefings, most auto executives were optimistic in their outlook for the domestic automotive market this year. This is especially so for Toyota and Perodua, which have order backlogs of 49k and 190k units – which puts both marques on track to hit their 93k- and 314k-unit 2023 sales volume targets and our forecasts of 100k and 320k units. The outlook for Tan Chong Motor remains gloomy, while Sime Darby’s prospects remain challenging as its China operations may take time to recover.
  • We think that a strong 2023 is largely priced in. In our view, there is a general consensus in the market that 2023 will be a strong year, especially for Toyota and Perodua. We also believe that investors are now looking out for a possible slowdown in orders, as this could be an early indicator of a decline in earnings.
  • Car sales to normalise in 2024F. After achieving a record-high TIV of 721k units in 2022 and a potentially near-record 2023 (RHB 2023F TIV: 680k units), we think that orders are more likely than not to slow down in 2024. Across most marques, orders are already normalising – since many models do not have waiting periods anymore (except for imported units and/or those of specific colours), and order backlogs are declining. Currently, only Toyota, Perodua and Honda have waiting periods across their models. We think that 2024 TIV could normalise to a level near the low-600k units, while there lacks catalysts that could drive it up to near 700k units. EV adoption is expected to grow but we think it will not move the TIV needle.
  • Our sector rating is now NEUTRAL as markets could gradually start to price in a potentially softer 2024. We think that, beyond a strong 2023, there lacks fresh catalysts to bring share prices to new highs. Although we are now less bullish on the sector, we still think UMW and MBM Resources – despite being NEUTRAL stocks – are still worth holding on to, given their 4% and 10% dividend yields. We still like Bermaz Auto, as we expect its sales volume to grow by 11% YoY in FY24 (Apr), driven by: i) Lower Mazda CX-30 prices, thanks to its local assembly; and ii) volume growth for Kia and Peugeot, from a low base. We also like its 9% FY24 yield, and think it may close 4Q23 (results scheduled for 12 Jun) with a special dividend.
  • Key upside risks include stronger-than-expected orders and deliveries, lower-than-expected costs, and better-than-expected FX movements. The opposite represent downside risks.

Source: RHB Securities Research - 2 Jun 2023

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