The automotive sector saw a May registering a 22%yoy growth (+33%mom) at 61,795 units. MIDF says this follows a weak April TIV given Raya festivities and scheduled plant closures during the month, while May 2022 was a slightly weak month given Raya festivities that fell in early-May 2022. Still, May TIV remained above the 60K mark driven by deliveries of strong backlog orders. The production also rebounded strongly in May, up +32%yoy and +58%mom reflecting the same reasons above.
Cumulatively, 5MCY23 TIV stood at 300,978 units (+12%yoy) – if annualised at 722,347 units, would be largely within estimates making up 101% of CY23F TIV of 713K added the investment house. The annualised 5MCY23 TIV however, is well ahead of MAA’s 650K CY23 projection and stands at the upper-range of consensus estimates. Booking trends picking up. We believe May 2023 TIV levels are sustainable, given still strong backlog orders even almost a year after the Penjana tax holiday expiry back in June 2022. We also gather that booking momentum picked up considerably in May 2023 – based on input from recent management briefings: (1) Perodua saw new bookings hit ~40K units, which is ~53% higher than its monthly average 1Q23 TIV of 26.2K, (2) Mazda registered 1.8K new bookings in May, higher than prepandemic monthly new bookings of 1.5K-1.6K.
Potential spillover into CY24. As it stands, Perodua entails close to 200K outstanding bookings (estimated 6-7 months waiting list), Toyota entails 49K backlog bookings (estimated 6 months waiting list), while Mazda entails 6K outstanding bookings (estimated 4-5 months waiting list). Given sustained backlog booking replenishments (based on early indications by players, this sustained in June) we see possibilities of the large backlog orders eventually spilling over into CY24. While we acknowledge a higher OPR (which had risen 125bps since May 2022), MIDF believes demand remains supported by sustained improvement in the unemployment rate and income conditions, which it said had been the thesis for the past 12 months. A moderating inflation trend also lends support.
Despite the bullish demand trend, the Ringgit (vs. USD) has remained persistently weak in the past 6 months (negative for UMW and TCM given USD-denominated cost exposure) and this has prompted us to factor in more conservative USD:RM assumptions of USD:RM4.4 into our projections from USD:RM4.3 previously. This is, however, partly offset by an average 2% price increase implemented by players (mostly implemented at the start of CY23).
On a net basis, MIDF trims its FY23F/24F for UMW by -4.1%/-1.4%. This it said reduces SOP-derived TP to RM4.60 as it also pegs its auto division to a lower PER of 10x (from 11x) in view of potentially negative sentiment on USD-exposed auto players. For TCM, the house now expects a deeper net loss of -RM20m/-RM38m from -RM7m/-RM12m previously. The PBV-based TP is revised down marginally to RM0.94.
MIDF is keeping a POSITIVE stance on autos given huge backlog orders, sustained new booking momentum and a supportive macro backdrop, while valuations are circa 20%-40% below the mean. BAuto is now a tactical favorite given its exposure to the weak JPY while having minimal exposure to the strong USD. BAuto is also riding on CKD model expansion via Mazda/Kia/Peugeot, while a dividend yield of 9.7% is attractive.
The house also likes MBMR for its cheap exposure to Perodua which has: (1) High model localization rate with minimal forex risk, (2) Strongest backlog bookings among the major players stretching up to 6-9 months. The dividend yield is attractive at 7.1% backed by a strong balance sheet (net cash accounts for 14% of the market cap). Despite the TP revision, UMW is still a BUY as it is a prime beneficiary of the recovery in auto demand given its dominant ~52% market share via 51%-owned UMW Toyota and 38%-owned Perodua. UMW’s equipment division is a proxy to recovering business momentum, rising infrastructure projects, and commodity demand, whereas aerospace is an indirect reopening play on the back of a recovery in global air travel
