Automobile - Oct TIV: Backlog clearance; growth to sustain

Date: 17/11/2022

Source  :  AmInvest
Stock  :  MBMR       Price Target  :  5.00      |      Price Call  :  BUY
        Last Price  :  3.42      |      Upside/Downside  :  +1.58 (46.20%)
Source  :  AmInvest
Stock  :  BAUTO       Price Target  :  2.25      |      Price Call  :  BUY
        Last Price  :  2.31      |      Upside/Downside  :  -0.06 (2.60%)

Investment Highlights

  • We retain our OVERWEIGHT call on expectations of healthy demand for passenger vehicles despite a challenging environment in times of high inflationary pressures. Recall that official data from the Department of Statistics (DOSM) revealed that Malaysia’s June 2022 sales of motor vehicles surged substantially by more than 20x YoY on the back of the positive effect of SST exemption which ended on 30 June. The YoY sales growth remained robust in the subsequent months (+6x in July, +2x in August and +44% in September). We believe October sales growth could normalise further but likely to remain resilient. We opine that chip and component shortages will continue to linger on albeit at a much smaller extent, given that the global supply chain has shown signs of easing amid still-declining freight rates.
  • The Malaysian Automotive Association’s (MAA) October TIV normalises to 61,002 units (-10% MoM) on a high base in the previous months with carmakers gradually clearing their backlog bookings that were received prior to the exemption expiry at the end of June. In October, sales volume of passenger vehicles dropped 9% MoM to 54,498 units whereas commercial vehicles decreased further by 14% MoM to 6,504 units. Having said that, overall year-to-date (YTD) sales volumes grew 51% YoY to 577,800 units, gearing towards our 2022 forecast of 655,000 units (MAA: 630,000 units).
  • Local brands beat out foreign marques with Perodua on the top spot with a sales growth of 5% MoM to 25,849 units, followed by Mazda at 1.3% to 1,018 units while Toyota grew less than 1% to 9,281 units. In contrast, sales volume of Honda sank by 19% to 5,849 units and Proton dipped 14% to 12,597 units, owing to high base effect of the prior months.
  • Perodua continues to be market leader with a share of 39%, surpassing the 200,000-unit threshold with YTD sales of 222,203 units, which is also just 10% short of its targeted sales volume of 247,000 units for the year. While the 51% volume growth was initiated from a low base due to Covid lockdown during June-August last year, we reckon the continuous rollout of new car models should support its target delivery. In terms of car models, Bezza sedan led with 6,768 units, Myvi came in second with 6,130 units and Axia 4,989 units.
  • Mazda’s sales volume expected to improve further with China easing its pandemic lockdowns which will see some relief in the ongoing supply disruptions. Furthermore, Bermaz Auto’s (BAUTO) strategy of absorbing half of the SST increase from July to the end of this year for new bookings under Mazda alongside Kia and Peugeot, is expected to provide some impetus to purchasers.
  • Proton’s sales volume declined, yet still exceeded 2021 achievement with 2 months to spare. YTD, Proton’s October sales have increased by 32% YoY with a market share of 19%. In October 2022, its bestseller – Saga sold 5,262 units with X50 SUV in the second spot, having delivered 3,602 units and the X70 1,391 units. For the 10 months this year, the X50 and X70 SUVs are inching closer to the 50,000-unit mark, delivering nearly 49,000 units.
  • The Civic (11th generation) remains Honda’s mainstay, delivering close to 7,000 units with the model’s market share of at least 80% in the C-segment sedans for the 10 months of this year, according to its Malaysian Managing Director and CEO. On a side note, both Hyundai (+2x) and Volvo (+89%) clocked in higher sales volume due to the low base in the previous month.
  • Our top picks are BAUTO (fair value RM2.25) and MBM Resources (fair value RM5.00) given their strong earnings trajectory underpinned by firm order book visibility of 7-8 months and superior sales growth fueled by consumer-friendly strategies coupled with easing supply conditions.


Source: AmInvest Research - 17 Nov 2022

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