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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Thu, 25 Apr 2019, 9:00 AM

 

Automotive - Short-working Month = Weak Sales

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We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for February 2019 registered sales of 39,838 units (-18% MoM, -2% YoY). MoM sales growth plunged on a shorter working month in light of the Chinese New Year festive holidays. Whereas, YoY sales growth was slightly lower mainly due to weaker commercial segment sales, and flat growth in passenger segment sales. The only gainer MoM was Toyota (+76% MoM, +45% YoY) on higher delivery of its all-new Toyota Vios, whereas Proton (-23% MoM, +37% YoY) continued its back-logged delivery of its allnew Proton X70 (20k bookings, 9.8k delivered). Nevertheless, the 2M19 reported TIV of 88,288 units (+4%) is within our expectation at 15% of our 2019 TIV target of 590,000 units (-1%). Sales volume for March 2019 is expected to be stronger than February 2019 on a normalised longer working month and vehicles deliveries surge to meet the sales target for quarter ended 31st March 2019. Our sector top-pick is MBMR (OP; TP: RM3.45) for its deep value stake in 22.58%-owned Perodua and as the biggest Perodua dealerships premised on the all-new Myvi (150k bookings, c.110k delivered), with further boost from the all-new Perodua ARUZ (booking at 14k units, c.4k delivered).

February 2019 registered sales of 39,838 units (-18% MoM, -2% YoY). MoM sales growth plunged on a shorter working month in light of the Chinese New Year festive holidays. Whereas, YoY sales growth was slightly lower mainly due to weaker commercial segment sales, and flat growth in passenger segment sales.

Taking a detailed look at the passenger vehicles segment (-17% MoM, 0% YoY), YoY passenger car sales growth was flat, which plunged MoM on a shorter working month with weaker sales growth across the board except for Toyota (+76% MoM, +45% YoY) powered by higher volume sales from all-new Toyota Vios which was launched on 24th January 2019 and supported by maiden contribution from the all-new Toyota Rush (late delivery due to approval issues). On the other hand, Proton was the other high gainer on YoY growth (+37%), boosted by higher delivery of Proton X70 (20k bookings, 9.8k delivered) with 2,823 units of X70 sold in February 2019 and further supported by the maiden sales of face-lifted Proton Iriz.

Expecting stronger March 2019 sales. Sales volume for March 2019 is expected to be stronger than February 2019 on a normalised longer working month and surge in vehicles deliveries to meet the sales target for quarter ended 31st March 2019. Moreover, March 2019 sales will be supported by the higher delivery of the new models, including the all-new Perodua ARUZ (entry-level SUV segment), Honda HR-V facelift (includes Hybrid), all-new Toyota Vios, all-new Toyota Rush, all-new Proton X70, face-lifted Proton Persona and Iriz (based on X70 unique features).

We maintain our 2019 TIV target at 590,000 units (-1%). We maintain our 2019 TIV target of 590,000 units (-1%), which is below MAA’s target of 600,000 units as we have factored in possible delay in new launches’ timing given the backlog of pricing approvals from the authorities (5-7 months), absence of sales boosting tax-holiday, and tepid purchasing power given the weak consumer sentiment (4Q18 MIER consumer sentiment index scored 96.8 pts (-10.7pts QoQ, +14.2pts YoY) which is below the optimistic threshold (>100pts) due to muted growth post zero-rated tax holiday, as expected). The Ministry of International Trade and Industry (MITI) has concluded that they will increase the frequency of the monthly meetings held by the Automotive Business Development Committee (ABDC), which is chaired by MITI, from once to twice a month to speed up the vehicles pricing approval process.

Perodua ARUZ cruising in. Perodua continued to lead the pack with a market share of 42% (2M18: 41%) and higher sales growth (+7% YoY) driven by higher deliveries of the all-new Perodua Myvi (bookings at 150k, with c.110k units delivered), and the all-new Perodua ARUZ (bookings at 14k units,c.4k delivered). At the number two position, Honda registered lower market share of 15% (2M18: 18%) with a lower sales growth (-11% YoY) as consumers held back purchases expecting new models in 2H19 despite better response for its best-selling models such as Honda City, BR-V Civic and all-new Honda HR-V facelift (launched 16th January 2019). On the other hand, Proton (+41% YoY) registered higher market share of 14% (2M18: 10%) owing to the higher delivery of the all-new Proton X70 (bookings at 20k, with c.9.8k units delivered). Drifting further down the list, Toyota scored stronger sales (+4% YoY) and unchanged market share of 9% (2M18: 9%) due to higher delivery in February 2019, of its best-selling all-new Toyota Vios, and supported by the all-new Toyota Rush (late delivery due to approval issues) and all-new Toyota Camry. Meanwhile, Nissan (-6% YoY)’s market share shifted lower to 3% (2M18: 4%), due to the lack of new volume-driven model launches; whereas, Mazda’s sales marginally was down 1%, with an unchanged market share at 3% (2M18: 3%) attributed to the normalisation in delivery of its all-new Mazda CX-5 after delivering the back-logged orders in the previous month.

MBMR (OP; TP: RM3.45) is our sector top pick, with or without an M&A angle, for: (i) its deep value stake in 22.58%-owned Perodua and (ii) dual-income streams as the largest Perodua dealer and from its manufacturing division as a parts supplier for Perodua as well as other popular marques. Our TP is based on 8x FY19E EPS, which is at -1SD of its 5-year forward historical mean PER.

Source: Kenanga Research - 20 Mar 2019

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