Despite the ending of SST exemption for new orders on 30 Jun 2022, we expect 2H22 TIV to remain strong, supported by the over 264k order backlogs (still entitled for SST exemptions for deliveries by 31 Mar 2023). We maintain our forecast of 600k units for 2022. OEMs with high order backlogs include Proton (DRB), Perodua (MBMR & UMW), Toyota (UMW) Honda (DRB) and Mazda (BAuto). Current chip shortage situation is expected to continue improve in 2H22. Nevertheless, we remain cautious on TIV in 2023. Maintain Neutral on the sector with Top Picks on: 1) DRB (TP: RM2.00); 2) MBMR (TP: RM5.00); and 3) BAuto (TP: RM2.05).

Jan-May 2022 TIV increased +7.4% YoY to 265.7k units, driven by: 1) pockets of lock-down measures in SPLY; and 2) better supply chain for current year on more informed SST exemption extension and better planned production schedule. National OEMs continued to lead the market with Perodua capturing 40.0% market share and Proton 16.3%. Within the foreign OEMs, Toyota has led the market with 13.8% market share, followed by Honda with 12.0% and Mitsubishi with 3.9%. Nissan and Mazda compete closely similarly at 2.5% respectively.

SST exemption ended for new cars effective 30 Jun 2022. However, SST exemption will still be applicable for cars booked until 30 Jun 2022, but deliveries by 31 Mar 2023. Government indicated 264k units of order backlogs when the announcement was made on 20 Jun, and we expect further surge in bookings by end Jun. We understand OEMs with high orders include Perodua, Proton, Toyota, Honda and Mazda. While we expect new orders to significantly slowdown in 2H22, we believe 2H22 sales will be mainly supported by the current high backlogs. We are maintaining TIV forecast for 2022 at 600.0k units (+17.9% YoY).

Global chip shortage has caused disruption to the supply chain of the automotive sector since earlier part of 2021. OEMs are in continuous engagement with principals and various suppliers to secure sufficient inventories to fulfil the strong demand during SST exemption period. Overall, the situation has gradually improved in 2022.

RM appreciation. We expect RM/USD to appreciate by end 2022 to 4.23 (from current 4.40, after depreciated from 4.15 in early 2022), while RM/JPY to remain stable at 3.30 (Bloomberg) by end 2022 (from current 3.25, after appreciated from 3.65 since starting 2022). Strengthened RM will reduce the effective input costs for imported CBU cars, CKD packs and raw materials, and subsequently improving OEMs’ margins. Major OEMs that have major exposure towards USD include Toyota (UMW) and Nissan (TCM), while JPY include Honda (DRB) and Mazda (BAuto).

Maintain Neutral with sales continued to remain strong in 2H22, but concern on sustainability into 2023. Our Top Picks are: DRB (TP: RM2.00), MBMR (TP: RM5.00) and BAuto (TP: RM2.05).

Source: Hong Leong Investment Bank Research - 6 Jul 2022