Automotive Sector Growth Against Expectations

Proton with a +53% increase month on month led the MoM growth in June given the improvement in production and supply after seeing depressed TIV for the most part of the first half of the year.

Automotive Sector Growth Against Expectations

A strong total industry volume (TIV) for the automotive sector in June with 63,366 units, up +25%mom is significantly higher compared to a low base in June 2021 which was impacted by the lockdowns running from June-August 2021.

Proton (+53%mom) led the month-on-month growth in June given improvement in production and supply after seeing depressed TIV for the most part of 1HCY22.

This was followed by Honda (+40%mom), Toyota (+19%mom) and Perodua (+12%mom). Mazda saw a steep contraction (-60%mom) due to temporary component supply delays from China which impacted its CKD production.

MIDF Research says Perodua have registered 21,200 units in June or +12 percent m-o-m. Proton 14,200 units (+53 percent m-o-m), and Toyota 8,900 units (+19 percent m-o-m).

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"However, we understand this has recovered swiftly – Mazda should see TIV recover to >1K units from July onwards, while CKD production has recovered to >900 units in June 2022 (from 248 units in May 2022)," says the analyst firm.

The passenger vehicle (PV) segment recorded a strong +31%mom growth to 57,063 units. Strength was seen across all PV sub-segment with SUVs leading the growth at +37%mom.

The commercial vehicle segment registered a +7%mom growth driven by the truck (+33%mom) and panel van (+30%mom) sub-segments in-line with the broad economic recovery.

The strong PV TIV in June may have been driven by the rush to maximise deliveries prior to the MoF’s decision to extend the registration deadline for SST-exemption qualified bookings made prior to June 30.

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Positive on automotive sector

MIDF says it remains positive on the auto sector as a play into a recovery in domestic consumption.

Notwithstanding normalization in OPR and higher inflation (which in the Malaysian context is much better contained) prospects are underpinned by strong order banks and an improving labor market & household income condition, while valuations are 25%- 40% below historical mean.

"BAuto (BUY, TP: RM2.36), MBM Resources (BUY, TP: RM4.05) and UMW (BUY, TP: RM4.20) remain our top sector picks."

Beyond the reopening theme, BAuto is a play into brand expansion from the acquisition of Kia and Peugeot franchise, leading to structural expansion in market share and above-industry growth.

MBM Resources and UMW are both key proxies to the sector recovery given exposure to Perodua (and Toyota for UMW) - effectively controlling the largest share of the industry.

"Key risks to our call are a prolonged spike in inflation, deterioration in broad economic recovery and a weaker than expected Ringgit."