Automotive (Consumer Products & Services)
Automotive - Keeping busy with backlog orders fulfilment
Mon, 09-Oct-2023 12:12 pm
by Steven Chong • Apex Research

• Review. Back in 2Q23, we gather that Total Industry Volume (TIV) contracted -9.8% QoQ, primarily due to decline in both passenger (-10.0% QoQ) and commercial vehicle sales (-7.6% QoQ). The lower passenger vehicle sales were attributed to a steep contraction in sales during April 2023 (-41.7% MoM) following the high base effect in March 2023, which was the final month for sales tax exemption. However, it's worth noting that passenger car sales rebounded swiftly in May 2023 (+33.2% MoM) and June (+5.5% MoM), thanks to the introduction of new vehicle models and quick delivery of backlog orders.

• Outlook. Looking forward, we anticipate that the Total Industry Volume (TIV) will remain robust for 2023, driven by the continuous fulfilment of backlog orders and new models release. Recently, the Malaysian Automotive Association (MAA) has also expressed optimism regarding the automotive sector by revising its full-year 2023 TIV projection from 650,000 units to 725,000 units, reflecting an increase of +11.5%. Nevertheless, we foresee TIV growth for 2024 to slowdown from the high base as orderbook replenishment normalised.

• Shifting to the EV space, we are generally positive on the long-term prospect, anchored by the notable commitment from the government to promote widespread adoption. During the 42nd National Physical Planning Council (MPFN) meeting, the government reinstated their commitment to construct 10,000 EV charging stations by 2025 in order to boost the availability of charging infrastructure. The government also provided various incentives such as tax exemption for CKD and CBU EVs for EV manufacturers, which we reckon will be the trend in upcoming tabling of Malaysia Budgets.

• Valuation & Recommendation. We anticipate auto companies involved in the premium EV space such as Sime Darby Bhd (NR) and DRB-Hicom Bhd (NR) to benefit from the government incentives due to MITI restriction where only CBU above RM100,000 are allowed to be imported into Malaysia. We also identify automotive component manufacturers such as Greatech Technology Bhd (NR), Genetec Technology Bhd (NR) and D&O Green Technologies Bhd (NR) to ride on the EV wave.

• Key Risk. Changes in government regulations and policies, supply chain disruptions, lower TIV due to economic uncertainty, slower-than-expected adoption of EV.

Recommendation: Neutral
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