The auto sector delivered a spectacular performance for 2022, total industrial volume (TiV) for December came in much stronger than expected, registering at a record high of 76,657 units, which brough to a new record of 720,658 unit a 42% jump for the whole year.
Notably, the record TIV was driven largely by Perodua, which registered its highest-ever TIV of 282,029 units or 48%yoy.
For other key brands, performance was still relatively strong albeit not exactly ahead of their all-time highs. For 2023 TIV to remain elevated says MIDF. Notwithstanding the exceptionally strong 2022 TIV, the research house expects TIV to remain elevated. Target it kept conservatively at 678K units at this juncture but does not rule out the possibility of TIV re-testing the 2022 record given the large backlog orders and still strong new booking momentum.
Underpinning this momentum are: (1) An improving underlying macro backdrop, (2) A more gradual pace of interest rate normalization (3) A strengthening Ringgit. Sector valuations too cheap to ignore. In view of this, MIDF says it sees scope for valuations to catch up with still robust sector fundamentals. At current levels, sector FY23F valuations look undemanding – our key stock picks; UMW/BAuto/MBMR are trading at -27%/-19%/-17% discount to historical mean.
The Ringgit has strengthened further in the past week, providing a tailwind to the sector as it effectively lowers kit and CBU import cost. At the current USD:RM4.28, the Ringgit has strengthened some +9.9% against the trough levels of USD:RM4.75 in November 2022.
UMW and Tan Chong Motor are key beneficiaries as their imports are predominantly USD-denominated. Meanwhile, the JPY is sharply weaker again after the Bank of Japan reiterated its dovish policy to support its economy. BAuto is exposed to JPY-denominated imports for Mazda CBUs (20%-30% of sales), hence is a beneficiary.
Going forward, however, BAuto is looking to reduce exposure to forex volatility by increasing CKD contribution (which is purchased in RM) via the upcoming launch of the CKD CX30.
