Automotive - SST Exemption to End But Deliveries Extended

Date: 21/06/2022

Source  :  HLG
Stock  :  MBMR       Price Target  :  5.00      |      Price Call  :  BUY
        Last Price  :  3.42      |      Upside/Downside  :  +1.58 (46.20%)
Source  :  HLG
Stock  :  DRBHCOM       Price Target  :  2.00      |      Price Call  :  BUY
        Last Price  :  1.38      |      Upside/Downside  :  +0.62 (44.93%)
Source  :  HLG
Stock  :  BAUTO       Price Target  :  1.95      |      Price Call  :  BUY
        Last Price  :  2.31      |      Upside/Downside  :  -0.36 (15.58%)

MOF has announced that SST exemptions will end by 30 Jun 2022, but allowed deliveries for orders made within the period to extend until 31 Mar 2023. The decision will benefit the current high order backlogs of 264k units (potential upside as consumers are likely to place last minute orders). Despite no extension to SST exemptions, we are still positive on the announcement as the automotive industry will still benefit from the extension of delivery time in order for the industry to fulfil its high order backlogs. At this juncture, we maintain our 2022 TIV expectation at 600k units (+17.9% YoY). We reaffirm our NEUTRAL call on the automotive sector with top picks: DRB (BUY; RM2.00), MBMR (BUY; TP: RM5.00) and BAuto (BUY; TP: RM1.95).


SST exemptions. Ministry of Finance (MOF) has announced there will be no further extension to the auto SST exemptions which will end on 30 Jun 2022. However, for bookings made by 30 Jun, consumers will still be able to enjoy SST exemptions for deliveries (registered with JPJ) up to 31 Mar 2023. The balanced decision was arrived after considering the current high 264k units of order backlog industry wide driven by the surge in demand and inability of OEMs to fulfil the hi gh orders within a short time, as they are affected by the ongoing supply chain disruptions. To note, the SST exemption exercise was first introduced on 15 Jun 2020 and had been extended three times to 30 Jun 2022, reducing car prices by 2-7% (paultan.org), in order to stimulate the economy and support the automotive industry during the pandemic.


Fair move. We are overall positive with the extension of deliveries time until 31 March 2023, giving a fair amount of time for automotive OEMs to fulfil their current high order backlogs (depending on models and specifications). OEMs would be able to fully benefit from the current high order backlogs without sacrificing their margins post Jun 2022, resulting to sustained margins until year end. OEMs with high order backlogs include Perodua (UMW & MBMR), Proton (DRB), Toyota (UMW), Honda (DRB) and Mazda (BAuto). We expect the industry wide order backlogs of 264k units to accelerate further post this announcement as consumers rush to place their orders to benefit from the 30 Jun 2022 deadline.

Post SST exemptions. Post Jun 2022, we do not expect OEMs to be aggressive in their sales and marketing expenses, pending better clarity on consumer sentiment by year end. We expect OEMs to remain cautious in their budgets in 2023, while leveraging onto attractive new model launches to sustain their sales volume.

Maintain NEUTRAL. Maintain our NEUTRAL view on the automotive sector. We maintain our assumptions of TIV 600k units (+17.9% YoY) for 2022 and remain cautious on a potential slowdown in TIV in 2023. We advise investors to accumulate

MBMR (BUY; TP: RM5.00) and DRB (BUY; TP: RM2.00), as we expect national OEMs to triumph over the longer term with potential growth from new export markets. We also like BAuto (BUY; TP: RM1.95) for its strong balance sheet with high order backlogs of 8k units for Mazda in Malaysia.


Source: Hong Leong Investment Bank Research - 21 Jun 2022

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