Sector Update

27 May 2021

PP7004/02/2013(031762) Page 1 of 6

Automotive OVERWEIGHT Chip Shortage Hiccup, Recovery in 2HCY21 ↔ By Wan Mustaqim Bin Wan Ab Aziz l wanmustaqim@kenanga.com.my

According to the Malaysian Automotive Association (MAA), TIV for April 2021 registered 57,912 units (-9% MoM, >100% YoY). The YoY superb growth was due to last year MCO 1.0 when all almost businesses were closed. Whilst, MoM lower sales was due to enforcement of CMCO in several states and global chip shortage which has impacted sales of some makes. We expect May sales to trend lower than April sales with the implementation of the MCO 3.0 reducing traffic flows into showrooms, shorter working month due to Hari Raya festive holidays, and global chip shortage which will continue to affect sales of some makes up to September 2021. Maintain OVERWEIGHT with 2021 TIV target of 585k units (+11% YoY) and 3% ahead of MAA’s target of 570k units. We expect a hiccup in sales of the older models from the global chip shortage (i.e. Perodua Myvi), to be offset by sufficient supply of newer models which garner better margins. We believe the new volume-driven launches could help spur sales along with the overflowing back-logged bookings and further boosted by the extension of SST exemption to 30 June 2021, seasonal promotions and more new launches in the 2H of the year. Our sector pick is MBMR (OP; TP: RM4.90) as a pure proxy to the largest national Perodua dealership and deep value in its 22.58% stake in Perodua.

TIV for April 2021 registered 57,912 units (-9% MoM, >100% YoY). YoY superb growth was due to last year MCO 1.0 when almost all businesses were closed. Whilst, MoM lower sales was due to enforcement of CMCO in Selangor, Kuala Lumpur, Johor, Penang, Kelantan and Sarawak and global chip shortage which has impacted sales of some makes. We expect May sales to trend lower than April sales with the implementation of the MCO 3.0 reducing traffic flows into showrooms, shorter working month due to Hari Raya festive holidays, and global chip shortage which will continue to affect sales of some makes up to September 2021. Taking a detailed look at the passenger vehicles segment (-9% MoM, >100% YoY) revealed that the -9% MoM unit sales contraction was primarily due to sharp dips in Perodua’s and Honda’s unit sales. Among outperformers. Mazda’s (+32% MoM, >100% YoY) sales were mostly

contributed by face-lifted CX-5 and all-new CX-8 with a recovery starting February after the surprise termination of its attractive promotional campaign hampered its January sales significantly. Toyota’s (+28% MoM, >100% YoY) sales mostly came from its top models namely all-new Toyota Vios, Yaris, and Toyota Hilux with overwhelming delivery of face-lifted Vios and Yaris. UMW introduced the all-new Toyota Corolla Cross, on 25 March 2021 to positive response, which is a CBU model from Thailand with local assembly expected to start in the second half of the year. Nissan’s (+10% MoM, >100% YoY) all-new Almera has started to propel positive growth for the brand, but overall growth still lags behind other marques from the dearth of all-new model launches. Proton (-1% MoM, >100% YoY) was buoyed by the all-new X70 and X50 (5,557 units sold at 38% of sales), with bulk of sales coming from X50 CKD (3,583 units, total 15,237 units delivered since launches) and further supported by the face-lifted Persona, Iriz, Exora and Saga (collective known as PIES). Perodua (-17% MoM, >100% YoY) was driven by the all-new Axia, Myvi, and Bezza, and boosted by ARUZ and Ativa (6,266 units sold at 31% of sales) with the all-new Ativa recording 4,624 units delivered (up to 9k units delivered since launches) way ahead of its 3,000-unit monthly target. The global chip shortage has only affected its older models especially Myvi while the newer models’ inventory is sufficient up to six months. Honda’s (-40% MoM, >100% YoY) sales mostly came from City, Civic and BR-V with exceptional response for the all-new City. The global chip shortage has affected its older models while the newer models’ inventory is sufficient up to six months. Maintain OVERWEIGHT with 2021 TIV target of 585k units (+11% YoY). We expect the current hiccup in sales of the older models from the global chip shortage (i.e. Perodua Myvi), to be offset by sufficient supply for the newer models which garner better margins. We believe the new volume-driven launches (i.e. Perodua Ativa, Proton X50, Honda City and Nissan Almera) could help spur sales along with overflowing back-logged bookings and further boosted by the extension of SST exemption to 30th June 2021, seasonal promotions and more new launches expected in the 2H of the year. Overall, 2021 could potentially be a better year with NAP 2020 incentives program, positive impact from BNM’s OPR cut and pre-emptive measures that soften the Covid-19 impact. Our economics research team have the view that an expected global growth recovery and the impact of the large fiscal stimulus on domestic economy would result in a projected GDP growth rebound of 6%-6.5% in 2021 (BNM: 6.0% - 7.5%; 2020: -5.6%).

TIV Market Share Movement

Position Marques 3M21 3M20 Market Share Sales Comment

1st Perodua 39% 43% ▼ 74% Driven by the all-new Axia, Myvi, and Ativa, shifting toward SUV 2nd Proton 24% 21% ▲ 116% Driven by Proton X70 and further all-new X50, and PIES line-ups 3rd Toyota 13% 10% ▲ 151% The all-new Vios Yaris, and Hilux received overwhelming responses 4th Honda 10% 10% ◄► 81% Driven by all-new City and expecting further boost from HR-V 2021 5th Nissan 2% 3% ▼ 56% Lack of new volume-driven model launches 6th Mazda 2% 2% ◄► 46% Driven by CX-5 and CX-8 National Marques 63% 64% ▼ Shift toward SUV lower volume for Perodua, and boosted by Proton.

Non-national Marques 37% 36% ◄► Lack of volume-driven launches. Source: MAA, Kenanga Research

Automotive Sector Update 27 May 2021

PP7004/02/2013(031762) Page 2 of 6

April 2021 sales for passenger and commercial vehicles according to top marques

Marques (units) Apr-21 Apr-20 Mar-21 % m-o-m % y-o-y YTD 2021 YTD 2020 % y-o-y Passenger Perodua 20,399 57 24,431 -17% 35688% 78,300 45,034 74% Proton 14,673 22 14,770 -1% 66595% 47,093 21,779 116% Honda 5,389 27 8,925 -40% 19859% 20,160 11,127 81% Toyota 6,873 11 5,389 28% 62382% 17,312 7,584 128% Nissan 1,253 6 1,138 10% 20783% 3,545 2,142 65% Mazda 1,603 - 1,218 32% N/A 3,975 2,703 47% Others 2,438 10 1,649 48% 24280% 8,711 5,507 58% Total 52,628 133 57,520 -9% 39470% 179,096 95,876 87%

Commercial Toyota 2,263 2 2,747 -18% 113050% 8,814 2,844 210% Isuzu 677 - 1,112 -39% #DIV/0! 3,199 1,570 104% Nissan 317 2 119 166% 15750% 752 613 23% Mitsubishi 680 6 940 -28% 11233% 2,850 1,493 91% Hino 448 - 503 -11% N/A 1,533 845 81% Mazda - - - N/A N/A - 20 -100% Others 899 9 937 -4% 9889% 3,312 2,163 53% Total 5,284 19 6,358 -17% 27711% 20,460 9,548 114%

TIV 57,912 152 63,878 -9% 38000% 199,556 105,424 89%

Source: MAA, Kenanga Research Total Industry Volume from April 2016 to April 2021

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Units

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Source: MAA, Kenanga Research

Automotive Sector Update 27 May 2021

PP7004/02/2013(031762) Page 3 of 6

Market share of top marques (Passenger) in Apr’ 2021 Market share of top non-national marques (Passenger)

Perodua39%

Proton28%

Honda10%

Toyota13%

Nissan2%

Mazda3%

Others5%

Honda31%

Toyota39%

Nissan7%

Volkswagen2%

Hyundai0%

Mazda9%

Others12%

Source: MAA, Kenanga Research

Market share of 4M2021 (Passenger and Commercial) Market share of 4M2020 (Passenger and Commercial)

Perodua39%

Proton24%

Honda10%

Toyota13%

Nissan2%

Mazda2%

Others10%

Perodua43%

Proton21%

Honda10%

Toyota10%

Nissan3%

Mazda2%

Others11%

Source: MAA, Kenanga Research

Market share of top marques (Commercial), Apr’ 2021

Toyota43%

Isuzu 13%

Nissan6%

Mitsubishi13%

Hino8%

Mazda0%

Others17%

Source: MAA, Kenanga Research

Automotive Sector Update 27 May 2021

PP7004/02/2013(031762) Page 4 of 6

Exciting New Launches All-New Proton X50 (CKD) – 27th Oct 2020 All-New Nissan Almera (CKD) –1st Nov 2020

All-New Honda City 1.5 (CKD) – 13th Oct 2020, RS

e:HEV 10th March 2021 Face-lifted Yaris/Vios – 17th December 2020

Proton Limited Edition-18th Feb 2021 All-New Perodua Ativa – Mar’21

All-New Toyota Corrolla Cross (CBU), CKD later-25th

Mar’ 21 All-New Honda HR-V – 2021/2022

Proton All-new sedan 2022/2023-tentative All-New Perodua D27A MPV/ Alza (CKD) – 2021/2022

Source: Various Sources

Automotive Sector Update 27 May 2021

PP7004/02/2013(031762) Page 5 of 6

Peer Comparison Name Last Price

(RM) Market

Cap (RM'm)

Shariah Complia

nt Current

FYE Revenue Growth Core Earnings

Growth PER (x) - Core Earnings PBV (x) ROE (%) Net Div Yld (%) Target

Price (RM)

Rating 1-Yr.

Fwd. 2-Yr. Fwd.

1-Yr. Fwd.

2-Yr. Fwd. Hist. 1-Yr.

Fwd. 2-Yr. Fwd. Hist. 1-Yr.

Fwd. 1-Yr. Fwd.

1-Yr. Fwd.

STOCKS UNDER COVERAGE BERMAZ AUTO BHD 1.35 1,567.9 Y 04/2021 51.7% -7.8% -11.6% 42.3% 15.6 17.7 12.4 3.0 2.4 15.3% 3.4% 1.50 MP DRB-HICOM BHD 1.85 3,576.5 Y 12/2021 7.0% 20.7% 68.4% 15.2% N.A. 11.0 9.6 0.4 0.3 3.2% 1.6% 2.50 OP MBM RESOURCES BERHAD 3.20 1,250.8 Y 12/2021 8.9% 4.4% 21.0% 5.6% 7.5 6.2 5.9 0.6 0.6 9.2% 3.8% 4.90 OP SIME DARBY BERHAD 2.28 15,509.8 Y 06/2021 5.9% 5.9% 15.0% 1.8% 14.9 13.0 12.7 1.0 1.0 7.9% 6.6% 2.55 OP TAN CHONG MOTOR HOLDINGS BHD 1.15 750.0 N 12/2021 13.4% 18.8% -121.6% 40.7% N.A. N.A. 18.5 0.3 0.3 -1.1% 1.3% 1.25 MP UMW HOLDINGS BHD 3.25 3,797.0 Y 12/2021 13.3% 12.2% 28.7% 7.3% 16.5 12.8 12.0 0.6 0.5 4.3% 1.8% 4.35 OP Simple Average 16.7% 9.0% 0.0% 18.8% 13.6 12.1 11.8 1.0 0.9 6.5% 3.1%

Source: Bloomberg, Kenanga Research

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Automotive Sector Update 27 May 2021

PP7004/02/2013(031762) Page 6 of 6

Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10% MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10% UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5% Sector Recommendations*** OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10% NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10% UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%

***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) Level 17, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Telephone: (603) 2172 0880 Website: www.kenanga.com.my E-mail: research@kenanga.com.my