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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Mon, 13 Jul 2020, 9:57 AM

 

Automotive - Absence of Festivities and Shorter Working Month

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We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for June 2019 registered sales of 42,526 units (-30% MoM, -34% YoY), second lowest monthly performance since the beginning of the year. MoM sales growth was weaker compared to the pre-festive sales in May 2019, as well as shorter working days from extended Raya Holiday. Meanwhile, YoY sales plunged due to higher base effect from the historic tax holiday which started on 1st June 2018. Only Proton recorded positive YoY growth backed by its popular Proton X70, and supported by face-lifted Proton Iriz, Persona and Exora. 6M19 reported TIV of 296,334 units (+2%) is within our expectation at 49% of our 2019 TIV target of 600,000 units. Sales volume for July 2019 is expected to be stronger on MoM basis from a weaker base, but is expected to weaker YoY due to the stronger tax-holiday base last year. Our sector top-pick is MBMR (OP; TP: RM3.45) while the other preferred selection is BAUTO (OP; TP: RM3.00).

June 2019 registered sales of 42,526 units (-30% MoM, -34% YoY). MoM sales growth was weaker compared to the pre-festive sales in May 2019, as well as shorter working days from extended Raya Holiday. Meanwhile, YoY sales plunged due to higher base effect from the historic tax holiday which started on 1st June 2018. Only Proton recorded positive YoY growth backed by its popular Proton X70, and supported by the fresh new face-lifted, improved technological variants of existing line-ups (Iriz, Persona, and Exora).

Taking a detailed look at the passenger vehicles segment (-31% MoM, -33% YoY), overall June passenger car sales were weaker across the board as mentioned. The worst hit was Honda (-49% MoM, -53% YoY) which has only one new model, Honda HR-V facelift (includes Hybrid) to cushion the fall, while still awaiting pricing approval for other new launches. On the other hand, Proton is the only gainer YoY (-28% MoM, +23% YoY), backed by its popular Proton X70 (30k bookings, 16.5k delivered) with 1,619 units sold (21% of June sales), and supported by face-lifted Proton Iriz, Persona and Exora. On the other hand, Perodua (- 30% MoM, -18% YoY) has shifted their sales toward the all-new Perodua ARUZ (25k bookings, 15k delivered) and recorded 2,062 units sold (11% of June sales). Toyota sales (-28% MoM, -57% YoY) was cushioned by the all-new Toyota Vios, all-new Toyota Yaris and Toyota Hilux, which comprises 70% of UMW Toyota sales, while Nissan (-27% MoM, -50% YoY) was cushioned by its Nissan Serena S-Hybrid (launched in May 2018) and Mazda (-22% MoM, -45% YoY) from its all-new Mazda CX-5.

Weaker July 2019 sales YoY. Sales volume for July 2019 is expected to be stronger on MoM basis from a weaker base, but weaker YoY due to stronger tax-holiday base last year. Overall, car 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 Yaris, all-new Toyota Rush, all-new Proton X70, face-lifted Proton Persona and Iriz (based on X70 unique features), and face-lifted Nissan X-Trail.

BAUTO new launches. In a recent launching event, BAUTO launched the all-new Mazda 3 Sedan and Hatchback (CBU). Looking forward, BAUTO will launch its popular face-lifted and turbo variants of CX-5 (CKD), and all-new Mazda CX-8 (CKD) in Sep 2019. BAUTO is also looking to bring in the all-new CX-30 (CBU from Thailand) and face-lifted CX-3 (CBU) in Dec 2019. BAUTO will introduce another new model (CKD) that will be introduced at the Tokyo Motor Show on 23rd October 2019 (estimated launch in CY2020/CY2021). Note that, Mazda Malaysia S/B is expected to stop production of the current CX-5 by the end of the month, with sufficient supply to cater up to September 2019. Meanwhile, the all-new Mazda 3 is a 7th generation Mazda vehicle and has three variants (CBU from Japan, 1.5L, 2.0L (high), 2.0L (high plus)) and is priced from RM140K to RM160K and we expect c.60 units to be sold per month.

Perodua raised 2019 target sales to 235,000 units. Perodua has increased its year-end target to 235k units (from 231k units, previously) as Perodua ramps up production to shorten vehicles waiting period from up to 2 months to below 1 month to fulfil backlog booking before the end-of the year. On the other hand, Perodua allocated 3,270 target units (+50% YoY) for export markets (Brunei, Fiji, Mauritius, Singapore, Sri Lanka, Indonesia, and Seychelles (Axia debuted in June)). Nevertheless, we make no changes to our associates’ earnings expectation for Perodua-linked stocks (MBMR and UMW), as we already factored in sufficient sales expectation (in terms of average sales per vehicles) as we believe that the extra sales composition is largely skewed towards lower-priced models (i.e. Axia, Myvi (lower-spec)). Note that, Perodua Manufacturing (PMSB) and Perodua Global Manufacturing (PGMSB) are running at two shifts, at 97% capacity, slightly higher than last year (at c.96%) which is still at optimum level condition.

We maintain our 2019 TIV target at 600,000 units (+0.2%). Despite Perodua increasing its year-end target to 235,000 units (from 231,000 units previously), we still maintain our 2019 TIV target at 600,000 units, in line with MAA’s target, as we have already factored in sufficient changes in other models. We believe the absence of one-off 2018 tax holiday will be offset by exciting new launches in 2019 and we have factored in a possible delay in new launches’ timing given the backlog of pricing approvals from the authorities (3-5 months), and tepid purchasing power. MITI has decided to 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. On the other hand, MITI has established a trade and advisory council (TIAC), which will discuss issues on subjects ranging from foreign direct investment (FDI) and domestic direct investment (DDI) to the National Automotive Policy (NAP) in its upcoming meetings, with a minimum of four meetings to be held annually. For stocks (DRBHCOM and TCHONG) that have deviated from the rating definition, we make no changes to our call and TP pending their upcoming results next month.

Source: Kenanga Research - 19 Jul 2019

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