Automotive - 2022 TIV to be Record Year High

Date: 20/10/2022

Source  :  HLG
Stock  :  BAUTO       Price Target  :  2.05      |      Price Call  :  BUY
        Last Price  :  2.16      |      Upside/Downside  :  -0.11 (5.09%)
Source  :  HLG
Stock  :  MBMR       Price Target  :  5.00      |      Price Call  :  BUY
        Last Price  :  3.46      |      Upside/Downside  :  +1.54 (44.51%)
Source  :  HLG
Stock  :  DRBHCOM       Price Target  :  2.06      |      Price Call  :  BUY
        Last Price  :  1.40      |      Upside/Downside  :  +0.66 (47.14%)

Sep 2022 TIV remained high at 66.0k units (adjusted). It was a drop of -3.7% MoM, due to a shorter working month and lower inventory level. TIV improved +49.3% YoY and +62.1% YTD (516.8k units), mainly due to low base effect. There is upside to our 2022 TIV expectation of 600k units (+17.9% YoY), given the expected sustaining sales volume till year end, as OEMs accelerate productions, imports and deliveries to meet the high order backlogs. However, we remain NEUTRAL call on the automotive sector as the accelerated sales in 2022 may lower down sales expectation into 2023. Top picks for the sector: DRB (BUY; RM2.06), MBMR (BUY; TP: RM5.00) and BAuto (BUY; TP: RM2.05).

Malaysian Automotive Association (MAA) reported TIV for Sep 2022 at 66.0k units (adjusted), a growth of +49.3% YoY as the industry continues its recovery from Phase 1 lockdown measures SPLY. TIV saw a slight drop of -3.7% MoM mainly on lower inventory levels and shorter working month. YTD TIV reported a substantial growth of +62.1% YoY to 516.8k units mainly due to low base effect, alongside a somewhat improved chip shortage situation. We expect upside to our TIV forecast of 600k units for 2022 (+17.9% YoY), as we expect continued high order deliveries in coming months as OEMs accelerate production and imports to fulfil the huge order backlogs (driven by ending of SST exemptions which is still applicable for bookings made by 30 Jun 2022 and deliveries done by 31 Mar 2023) and reduce the waiting period. We believe current order backlogs for industry remains strong at over 300k units.

Despite the expected strong TIV recovery until year end (backed by the high order backlogs), we still maintain our NEUTRAL rating on the sector, as we expect TIV to slowdown in 2023. We advise investors to accumulate MBMR (BUY; TP: RM5.00) and DRB (BUY; TP: RM2.06), as we expect the national OEMs to triumph over the longer term with potential growth from new export markets. We also like BAuto (BUY; TP: RM2.05) for its strong balance sheet with high order backlogs lasting for more than 6 months.

For the period of April-Sep 2022, there was no data available for Peugeot and Kia.

Perodua (UMW and MBMR) recorded a sales of 24.6k units in Sep, a drop of -5.4% MoM due to shorter working month and lower inventory level. However, sales improved +73.9% YoY and +64.9% YTD (196.4k units) mainly due to low base effect on lockdown restrictions SPLY. Perodua managed to maintain its top position with market share at 38.0%. CEO Datuk Seri Zainal indicated most of the major issues within the automotive supply chain have normalized and Perodua is focused on maximising production (produced 28.3k units in Sep) to meet the high order backlogs. Perodua is also conducting a research on hybrid model and subscription-model feasibility for the company's future by a program offering 300 units of Ativa Hybrid through only subscription service.

Proton (DRB) sales remained strong at 14.6k units in Sep (-2.4% MoM; +42.4% YoY), post achieving its record month high of 14.9k units in Aug. YTD sales only increased by +37.6% YoY to 98.0k units, behind market’s growth of +62.1% YoY, affected by supply chain issue during the first 5 months. Proton retained its second position with 19.0% market share. Including export volume, YTD sales was 102.4k units (+40.2% YoY). Management attributed the strong sales in 3Q22 to the improvement of supply chain issues and continued strong demand for Proton models. Proton expects continued strong performance in 4Q22, enabling the national OEM to achieve its sales target of 136-150k units (+18.6%-30.8% YoY). Proton is targeting to launch the new X90 SUV 7-seater in 2023 and is also developing its own EV model (no timeline commitment yet).

Toyota (UMW) maintained its top position within the foreign segment with 9.1k units (+1.5% MoM; +14.7% YoY) in Sep. YTD sales was 70.1k units, +53.9% YoY (vs. market’s +62.1%) and the OEM’s market share was 13.6%. We understand that Toyota has outstanding orders lasting for 4-5 months. Toyota is currently ahead of its sales target of 80k units, potentially achieving 95k units for 2022. Toyota has recently launched its new MPV Veloz (sister to the new Perodua Alza) at RM95k. Other upcoming exciting new launches would be a new EV model (likely by end 2022) and new Vios in 2023.

Honda (DRB) recorded sales of 7.2k units (-10.3% MoM; +78.1% YoY) in Sep. YTD sales was 60.2k units (+94.0% YoY), with 11.6% market share, trailing behind Toyota. Honda is targeting sales of 80k units for 2022, which will likely remain behind Toyota within the foreign segment. Management has revealed the outstanding orderbook of 30k units for newly launched HR-V model by end-Sep. Honda has recently launched its new Honda Civic e: HEV variant and expected to launch new CR-V and BR-V next.

Nissan (TCM) sales remained weak at 1.0k units (-6.6% MoM; -22.2% YoY) in Sep. Nevertheless, YTD sales increased by +43.2% to 11.0k units with a market share of 2.1%. The sales remained relatively weak as Nissan maintained its strategy to avoid stiff market competition, while leveraging onto its core models: Almera, Serena and Navara. Latest model launch was the Serena facelift with price ranging RM150-163k in Jul 2022 and Nissan is expected to launch a new attractive X-Trail SUV in 2023.

Mazda (BAuto) sales sustained at 1.0k units (-26.7% MoM; +23.5% YoY) in Sep. YTD sales was up by +50.2% YoY to 10.7k units, with a market share of 2.1%. We understand Mazda order backlogs can last more than 6 months. Mazda has recently launched an updated CX-3 at attractive pricing RM107.9-118.2k. Upcoming new model launch include CX-30 CKD by year end/early 2023 with pricing RM127-155k.

BMW (Sime Darby) sales improved +27.1% MoM and +63.4% YoY to 1.1k units in Sep. YTD sales improved by +100.0% YoY to 8.9k units, mainly due to low base effect. The premium OEM registered a market share of 1.7%. BMW has been one of the leading premium OEMs in aggressively introducing new EV models into Malaysia market and collaborating with various EV charging service providers since the start of the year. New EV models include iX, iX3, i4 and upcoming i7.

Source: Hong Leong Investment Bank Research - 20 Oct 2022

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