Kenanga Research maintained NEUTRAL on the Automotive sector as it holds the view that the impending fuel subsidy rationalisation will likely hurt the demand for mid-market models, while remaining optimistic on the sales of affordable vehicles.
“We believe a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy underpinned by strong consumer confidence, the affordability of motor vehicle and potentially cheaper hire purchase cost with the introduction of the reducing balance method and attractive new models.
“However, we acknowledge that the impending fuel subsidy rationalisation is likely to hurt the demand for mid-market models, while remaining optimistic on vehicle sales in the affordable segment as the buyers,” it said In its Sector Update note today (Jan 18).
The research house said that for CY24, it projects a softer TIV of 710,000 units, an 11% decrease from CY23 number.
“(This is slightly) lower than 740,000 units projected by Malaysia Automotive Association (MAA). The industry’s earnings visibility will be backed by a booking backlog of 200,000 units.
“(In 2023), new vehicle sales in Malaysia, also known as total industry volume (TIV), met our expectation at 799,731 units, an increase of 11% in CY23.
The research house said December 2023 TIV ended the year on a high note at 78,398 units, an increase of 9% month-on-month (MoM) and increase of 2%, year-on-year (YoY), driven by year-end promotions especially by Honda.
“CY23 TIV of 799,731 units, an increase of 11% our expectation. The industry’s earnings visibility will be backed by a booking backlog of 200,000 units compared to 220,000 units, a month ago, despite heavy deliveries, which will keep the industry busy for next 3 to 4 months.
“Looking ahead, we believe January 2024 TIV will hit a speed bump, tapering off from a seasonally strong December month,” it said.
On a detailed analysis of the passenger vehicle segment in December 2023 at 70,908 units, an increase of 9% MoM and 3% YoY.
“Overall, the passenger vehicles segment was driven by year-end promotions.”
It said that Honda (+32% MoM, +38% YoY) shone with it all-new Honda WR-V coupled with “Sale on Sale” year-end promotional campaign targeting small and medium-sized enterprise (SME) employees.
“Overall, its sales were driven by the City, Civic and all-new HR-V,” it said.
For Proton (+2% MoM, -16% YoY), Kenanga said sales were mainly driven by the all-new X70, X50 and X90 (3,813 SUV units sold, making up 32% of sales), and supported by the all-new S70, as well as face-lifted Persona, Iriz, Exora and Saga (collectively known as PIES).
“Meanwhile, Perodua’s (-3% MoM, +0% YoY) sales continued to be propelled by the all-new Perodua Alza and all-new Perodua Axia, with equally strong sales of the Bezza, MyVi, Ativa models.
“Nissan (-5% MoM, -22% YoY) managed to entice buyers as evidenced by its fast-moving inventory, but overall is still losing out in the all-new vehicles race, depending on the face-lifted Nissan Serena S-Hybrid, Navara, and Almera Turbo.
“Mazda (-5% MoM, -15% YoY) was driven by exceptional response for its Mazda CX-30 CKD, the CX-5 and CX-8 while Toyota’s (-8% MoM, -7% YoY) sales were driven by its popular top models,” it added.
Kenanga said there is resilient demand for the affordable segment, as for CY24, it projects a TIV of 710k units (-11%) which is closely in line with the 740,000 units projected by Malaysia Automotive Association (MAA).
“The industry’s earnings visibility is still strong, backed by a booking backlog of 200,000 units as at end-Dec 2023. More than half of the backlog is made up of new models, alluding to how appealing new models are to car buyers.
“We expect a similar trend in CY24, given an equally strong line-up of new launches during the year,” it said.
The research house also thinks that excitement is building in the electric vehicle (EV) segment the introduction of locally-made first national EV is expected in CY25.
“Additionally, vehicle sales will be supported by new BEVs that enjoy SST exemption and other EV facilities incentives up to CY25 for Complete Built-Up (CBU) and CY27 for Completely Knocked Down (CKD).”
Kenanga’s sector top pick is MBM Resources Berhad (MBMR) (OP; TP: RM5.50), which focuses on the affordable segment and offers an attractive dividend yield of about 11%.
