The research house cautioned investors for a ‘speed bumps down the road’ for the auto thus maintains a ‘NEUTRAL’ call on this sector.
With the figures released by the Malaysian Automotive Association (MAA) on February’s TIV of 43,722 units (+0.6% YoY, +7.7% MoM). The MoM increase was mainly driven by Proton and Honda as most other marques saw MoM dips. Hence, RHB Research remains cautious on 2H22 as the sales and service tax (SST) re-imposition and higher raw material costs pose risks to TIV and margins. While TIV may taper off post SST-holiday, distributors’ incentives could keep sales volume
afloat, but at the expense of margins.
Due to a shorter working month with Lunar New Year holidays, most marques experienced MoM declines. However, TIV rose
7.7% MoM, mainly lifted by Proton (+109%) and Honda (+56%). Toyota/Lexus sales volume declined 15%, likely due to Toyota’s 13% decline in production. YoY, Feb 2022 TIV was up by a marginal 0.6% from a strong Feb 2021, mainly driven by Honda (+37%) and Toyota/Lexus (+27%). Note that Feb 2022 TIV does not include BMW’s and Volkswagen’s units sold. YTD, Proton’s sales fell by 4,295 units (-24%) as production fell 18% due to floods in Dec 2021, which disrupted the supply of components from vendors in Klang Valley. Among the non-national marques, Toyota continued to lead with a 16.6% local market share, while Honda trailed behind at 11.7%.
Total industry production (TIP) rose 19% MoM and 13% YoY. The MoM recovery was mainly led by Proton, driven by a post-flood recovery in production of the Saga and Exora models at the Shah Alam plant. Perodua also had a strong recovery, mainly driven by Perodua Axia and Bezza.
While 1H22 TIV will likely remain strong, driven by the SST-holiday and robust order backlogs, we continue to expect 2H22 to be weaker post-SST holiday, especially in July. Some industry players are lobbying for another round of extension of and/or staggered end to the SST-exemption. However, the view of the research house is that, another extension is unlikely, which may leave some marques absorbing the SST and/or provide promotions to buoy up sales, at the expense of margins.
Moreover, should costlier raw materials translate into higher prices of future launches, sales volume could face further downside risks. If the distributors do not pass on the higher input costs, margins may face further downward pressure. Hence, their advice is to remain ‘cautious for 2H2022’.
However, the research house’s 540,000 TIV assumption remains unchanged, as it continues to expect a strong 1H22 followed by a weaker 2H22. It maintains ‘NEUTRAL’ view on the sector, given the aforementioned risks in 2H22 may
weigh on a potentially stellar 1H22.
Downside risks that may hamper the sector’s recovery include persistent shortages of key components and delays in new model launches. With a mutating COVID-19, the research house forewarn of possibility of disruptions to operations going forward. Other downside risks include the tightening of bank approvals for car loans and a sharp weakening of the MYR.
