Automotive - 2023 TIV: a U-Curve

Date: 05/01/2023

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  :  2.24      |      Price Call  :  BUY
        Last Price  :  1.41      |      Upside/Downside  :  +0.83 (58.87%)

We project 2023 TIV at 630k units, a drop of -10.0% YoY (due to ending of SST exemptions), after registering a record high of 700k units in 2022. TIV will remain strong in 1Q23, but slowdown in subsequent quarters, before a potential recovery towards year end due to aggressive year-end sales. OEMs will have to leverage on exciting new models launches (e.g. Proton (DRB), Perodua (MBMR & UMW), Honda (DRB) and Toyota (UMW)) to support sales in 2023. The sector is expected to benefit from RM appreciation against USD and sustaining low JPY in 2023. We expect domestic OEMs Proton (DRB) and Perodua (MBMR & UMW) to continue to outperform their competitors over the longer term, driven by attractively priced new models and new export programs. Maintain NEUTRAL on Automotive sector, with Top Picks on DRB (TP: RM2.24) and MBMR (TP: RM5.00).

TIV. For 11M22, TIV registered a superb growth of +44.8% YoY, due to strong demand on SST exemption measures combined with the low base effect from lockdowns SPLY. For 2022, we expect TIV to achieve a new record high of c.700k units (+37.6% YoY). For 2023, we expect TIV to normalize back to 630k units (-10% YoY), mainly due to ended SST exemption measures.

2023: a U-Curve. We expect 2023 TIV to start on a high note due to accelerating deliveries to meet the high order backlogs prior to ending of SST exemption by 31 Mar 2023. However, we expect TIV to slowdown by 2Q23, due to declining new orders as consumers would have already brought forward their purchases. Hence, OEMs will have to leverage onto attractive new models and sales programs in order to sustain sales. Attractive new launches include Proton (DRB) – new Geely-based models; Perodua (UMW & MBM) – new Sedan model, Aruz facelift and Axia facelift; Honda (DRB) – new WR-V, new CR-V and new BR-V; Toyota (UMW) – new Vios and new Yaris. Subsequently, TIV will likely recover towards end-2023 due to normalizing demand and more aggressive year-end sales.

Consumer sentiment. MIER’s Consumer Sentiment Index has been on an uptrend since the lows during the pandemic in 1Q20. The latest reading in 3Q22 (98.4) saw a QoQ improvement (2Q22: 86.0) but fell short of the 100-point optimism threshold – indicating that sentiment is recovering but it’s still too early to consider it as indicating optimism.

Higher interest rate. The expected continued hike in OPR in 2023 to 3.25% (from 1.75% in early 2022) may affect consumer sentiment in purchasing a new car. We estimated a +25bps effect on monthly instalment of +RM15/month (based on RM80,000 car price, with 90% loan application and 9-year loan period).

RM appreciation. We expect RM/USD to appreciate further from current level of 4.40 to average 4.34 level in 2023 (vs. average 4.40 in 2022), while JPY (x100) to remain at average 3.33 level (Bloomberg forecast) in 2023 (vs. average 3.36 in 2022). Stronger RM will lower the effective input costs for imported CBU cars, CKD packs and raw materials, and subsequently improve OEMs’ margins. OEMs that have major exposure towards USD include Toyota (UMW) and Nissan (TCM), while for JPY, this includes Honda (DRB) and Mazda (BAuto).

Maintain NEUTRAL. While SST exemption extension will fuel TIV numbers into 1Q23, TIV is expected to abate in subsequent quarters before recovering by year end. We expect earnings for the sector (except for DRB, leveraging onto Proton sales growth) to drop in 2023 due to lower sales volume and higher operating costs. Our top picks are DRB (BUY, TP: RM2.24) and MBMR (BUY, TP: RM5.00) for their strong leverage onto the national OEMs, i.e. Proton and Perodua, which has more sustainable sales volume and potential export growth in the longer term.


Source: Hong Leong Investment Bank Research - 5 Jan 2023

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