Perodua revealed its 2023 sales target recently. In a positive surprise, Perodua is targeting another record year in 2023 with a sales target of 314K units, which is 11% higher than the latest record high of 282,019 units that it achieved last year. In line with its bullish sales outlook, Perodua expects the industry’s 2023 TIV to hold up above 700K units, which is higher than the MAA’s forecast of 650K and our forecast of 678K units.
The auto maker’s outstanding orders currently stand at 220K units, which already makes up 70% of the 2023 sales target. As such, MIDF believes the targeted record sales in 2023 is realistic. This is coupled with low cancellation rate of just 2% and will be boosted further by launch of the new Axia this month. Over 90% of the outstanding bookings comprise of post-tax holiday bookings, signaling still strong underlying demand momentum despite expiry of the tax holiday on 30th June 2022.
The new Axia has been opened for bookings on Tuesday ahead of its official launch mid-February. The Axia is Perodua’s 3rd largest volume driver, making up an estimated 20% of Perodua’s TIV. Based on newsflows, the new Axia could be priced higher than the outgoing model, albeit with additional and more sophisticated technological features, particularly in terms of safety systems.
MIDF expects 2023 TIV to remain elevated with possibilities of TIV re-testing the 2022 record given large backlog orders and still strong new booking momentum. Considering that Perodua is the industry bellwether accounting for ~40% share, its TIV will have a bearing on the overall industry. There is an upside risk to the 2023F TIV of 678K as a result of this latest development. Underpinning this further are: (1) An improving underlying macro backdrop, (2) A more gradual pace of interest rate normalization.
In view of this, the research house reiterates its view that there is 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 is trading at -27%/-19%/-17% discount to historical mean.
Recommendations: POSITIVE call on autos. Premised on: (1) A favorable forex environment; (2) Players are
entering CY23 with a strong 6-9 month order backlog (3) New launches are set to reaccelerate following delays in the past
year (4) Improved macro environment – easing inflation and improved labor market to drive domestic consumption (4)
Players are sitting on large net cash piles, underpinning attractive dividends and M&A potential. Top picks are UMW
(BUY, TP: RM5.00), BAuto (BUY, TP: RM2.67) and MBMR (BUY, TP: RM4.60)
