China Galaxy Securities: Malaysia's car market sluggish in May, expected annual sales to decrease by 8% year-on-year.

China Galaxy Securities released a research report stating that the Malaysian automobile market has considerable capacity, with low penetration of new energy vehicles and broad room for improvement. Chinese domestic brands represented by BYD Company Limited are gradually gaining recognition in the local market and are expected to lead the transformation of new energy vehicles in Malaysia. Despite the short-term sluggishness in the local market, the continuous trend of increasing penetration of new energy vehicles is expected to result in a significant increase in new energy vehicle sales. Chinese domestic brands are expected to benefit fully from this trend. It is recommended to invest in the globally leading new energy vehicle company BYD Company Limited (01211) and GEELY AUTO (00175). Main points of China Galaxy Securities: Event Data from the Malaysian Automotive Association (MAA) shows that in May 2026, the total sales volume of the automobile industry was 61,250 vehicles, a year-on-year decrease of 12% and a month-on-month decrease of 15%. This weakened sales performance was within expectations, primarily due to a reduction in working days during the month and uncertainties surrounding fuel subsidy policies. Soft sales in May 2026 are in line with market expectations In May 2026, the total sales volume of the Malaysian automobile market decreased by 12% year-on-year and 15% month-on-month. This month's weak sales were in line with market expectations, largely influenced by a reduction in working days during the month and uncertainties surrounding fuel subsidy policies. In terms of month-on-month performance, only Toyota (up 9%) and JETOUR (up 3%) achieved positive sales growth in May. Toyota's sales rebound was mainly due to the launch of the all-new Yaris Cross model in May 2026, with 1,278 units registered in the month according to Malaysia's Road Transport Department data. JETOUR's market penetration rate continued to increase, with market share rising from 0.3% in 2025 to 1.2%. Meanwhile, Japanese automakers as a whole saw a contraction in market share: Toyota's market share declined from 12.3% for the full year of 2025 to 9.2%, and Honda's share fell from 8.8% to 6.3%. Cumulative automobile sales from the beginning of 2026 to date have decreased by 1% year-on-year, totaling 315,476 units; the sales of most brands have generally weakened, with only Proton, Mazda, and BYD Company Limited achieving growth against the trend. Proton's market share increased by 7.8 percentage points to 26.3%, while Mazda's market share increased by 0.3 percentage points to 1.5%. Expected total sales volume of the Malaysian automobile market for the full year 2026 is 755,000 units The expected total sales volume of the Malaysian automobile market for the full year 2026 is 755,000 units, down 8% year-on-year. The cumulative sales for the first five months of 2026 totaled 315,476 units (down 1% year-on-year), closely aligning with the annual forecast. Although seasonal demand in the automotive industry is typically stronger in the second half of the year, the bank expects market demand to remain weak in the second half of 2026 due to continued inflationary pressures. Major automobile brands are expected to launch promotional activities in June to support sales, while the penetration of new energy vehicles continues to rise Despite a lower number of working days in June, major brands are increasing promotional efforts, which may support sales this month. The sales of new energy vehicles in Malaysia in May decreased by 15% compared to the previous month, totaling 5,038 units (still up 21% year-on-year). The proportion of new energy vehicle sales to total industry sales reached 8% in the first five months of this year (compared to only 5.5% for the full year 2025), indicating the continued strong growth momentum of new energy vehicles. The proportion of new energy vehicle models exhibited at the Kuala Lumpur International Motor Show (KLIMS) has significantly increased, confirming the industry trend of continued growth in the penetration of new energy vehicles in Malaysia. Malaysia has tightened its policies on imported complete vehicles (CBU) of new energy vehicles, benefiting local assembly of new energy vehicles (CKD), which will further promote the localization of the automotive industry. Proton's QV-E model has seen a gradual increase in sales since February 2026, with delivery volume rising from 52 units in April to 80 units in May. With the introduction of a full payment purchase plan for this model, as well as optimizations in local industry localization and a price adjustment in June, the QV-E model is expected to contribute significantly to brand sales growth in the future. Risk Warning: Risks of local automobile sales falling below expectations; risks of increased market competition; risks of lower-than-expected increase in penetration of new energy vehicles; risks of local automobile support policies falling below expectations.