RHB Investment Bank (RHB), in its 1Q24 Report Card today (2 July, Tuesday), stated that the auto sector's performance largely missed expectations, with two counters underperforming, one in line, and one surpassing projections.

RHB's top pick remains Bermaz Auto (BAUTO). Despite the strong YTD-May TIV, RHB anticipates a meaningful decline in TIV for 2024, likely in 2H, due to a lack of catalysts. BAUTO's FY24 results were in line, while Sime Darby and Tan Chong Motor fell short. MBM Resources exceeded expectations due to strong Perodua sales, and BAUTO recorded another year of record earnings with solid Mazda sales volumes. BAUTO also declared a special DPS of 7 sen and a 4QFY24 DPS of 4.75 sen, bringing its FY24 DPS to 26 sen with an 86% payout ratio.

Major marques such as Perodua and Toyota have seen declines in their order backlogs. Perodua aims for sales of 330k units this year, similar to last year's 330,325 units. With a 20% YoY YTD volume growth, RHB believes this target is achievable and has revised its 2024 Perodua sales assumption to 330k units from 250k previously.

RHB foresees a seasonally weaker 2Q24 TIV QoQ due to the shorter working quarters and public holidays. YoY, 2Q24 should post stronger sales volumes due to the low base and outstanding growth from Perodua. Post-1Q24 results, RHB revised its 2024 TIV forecast to 740k units from 625k units, mainly due to the upward revision of Perodua's forecasted volumes. Nonetheless, RHB expects a meaningful TIV decline in 2H24 as backlogs taper off and sales normalise.

RHB maintains a NEUTRAL call on the sector, expecting a weaker TIV performance as sales volumes normalise in 2H24. BAUTO remains RHB's top pick due to its approximately 9% dividend yield and resilient car sales compared to other marques.