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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 15 Nov 2019, 10:29 AM

 

Automotive - Shorter Working Month, Proton in Second Position

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We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for September 2019 registered sales of 44,666 units (-13% MoM, +43% YoY). MoM sales growth plunged on shorter working month due to the spate of public holidays as well as consumers held back purchases, awaiting for extra goodies in the National Budget 2020 (October 2019). Meanwhile, YoY sales soared higher due to the low-base effect after the historic tax holiday which ended on 31st. August 2018. 9MCY19 reported TIV of 442,991 units (-3%), within our expectation, at 74% of our 2019 TIV target of 600,000 units with Proton surpassing Honda to take second position for the first time since 2016 in overall car sales with higher market share of 16% (9MCY18: 11%) and magnificent sales growth (+42% YoY) owing to the higher delivery of the all-new Proton X70, and supported by the existing face-lifted line-ups. Sales volume for October 2019 is expected to be stronger than September 2019 from the longer working month and post-budget 2020 enthusiasm. Our sector top-pick is BAUTO (OP; TP: RM2.75) which offers a steady dividend yield of 7.4%.

September 2019 registered sales of 44,666 units (-13% MoM, +43% YoY). MoM sales growth plunged on shorter working month due to the spate of public holidays as well as consumers held back purchases, awaiting for extra goodies in the National Budget 2020 (October 2019). Meanwhile, YoY sales soared higher due to the low-base effect after the historic tax holiday which ended on 31st August 2018.

Taking a detailed look at the passenger vehicles segment (-14% MoM, +49% YoY), overall MoM September passenger car sales plunged on shorter working month, while YoY sales soared higher due to the low-base effect. Mazda (-55% MoM, -63% YoY) suffered the worst performance for the month after delivering all their discounted Mazda CX-5 to clear inventory ahead of the new launching of face-lifted Mazda CX-5 (30th September 2019) and Mazda CX-8 (1st October 2019) which was awaiting pricing approval from authorities for delivery. On the other hand, the highest YoY gainer for the month was Proton (-5% MoM, +92% YoY) backed by its popular Proton X70 (30k bookings, 21.9k delivered) with 1,495 units sold (17% of September sales), and further supported by face-lifted Proton Saga, Iriz, and Persona, followed by Toyota (-10% MoM, +91% YoY) driven by the all-new Toyota Vios, all-new Toyota Yaris, and Toyota Hilux, which comprised 70% of UMW Toyota sales and Perodua (-15% MoM, +79% YoY) which has shifted its sales focus toward the all-new Perodua ARUZ (25k bookings, 22.2k delivered) and recorded 1,913 units sold (11% of September sales). Nissan (-7% MoM, -21% YoY) remained weak due to dearth of all-new model launches to spur demand as well as lower traction from the face-lifted Nissan XTrail, while Honda (-24% MoM, +16% YoY) was still awaiting pricing approval to launch its new model.

Expecting stronger October 2019 sales. Sales volume for October 2019 is expected to be stronger than September 2019 from the longer working month and post-budget 2020 enthusiasm. Overall, car sales will be supported by the higher delivery of 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 Proton X70, face-lifted Proton Persona, Iriz, and Saga (X70 unique features), and face-lifted Nissan X-Trail as well as maiden delivery of the face-lifted CX-5 and all-new Mazda CX-8 which are expected to be delivered after receiving pricing approval from authorities.

We maintain our 2019 TIV target at 600,000 units (+0.2%). We maintain our 2019 TIV target at 600,000 units, in line with MAA’s target. We believe the absence of sales-boosting event such as the one-off 2018 tax holiday will be offset by exciting new launches in 2019 and we have also factored in possible delays in new car launches 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), chaired by MITI, from once to twice a month to speed up the vehicles pricing approval. 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/year). For stocks (i.e MBMR and UMW) that have deviated from the rating definition, we make no changes to our calls and TPs for now pending further corporate development and re-rating catalysts.

Proton surpassed Honda in second position. Perodua continued to lead the pack with a higher market share of 40% (9MCY18: 37%), with commendable sales growth (+6% YoY) driven by the all-new Perodua Myvi, and the all-new Perodua ARUZ. Proton surpassed Honda in second position for the first time since 2016 in overall car sales with higher market share of 16% (9MCY18: 11%) and magnificent sales growth (+42%) owing to the higher delivery of the all-new Proton X70, and also supported by the existing face-lifted line-ups. At the third position, Honda registered lower market share of 15% (9MCY18: 18%) with a lower sales growth (-19% YoY) as consumers held back purchases, expecting new models in 4QCY19, which was delayed due to pricing approval issues. Drifting further down the list, Toyota sales volume plunged (-10% YoY) with a lower market share of 11% (9MCY18: 12%) as Toyota recorded the highest sales volume in history during the tax holiday last year. However, it was cushioned by its best-selling all-new Toyota Vios, all-new Toyota Yaris, and Toyota Hilux which are expected to register better sales in 4QCY19. Meanwhile, Nissan (-25% YoY) saw its market share lowered to 3% (9MCY18: 4%), due to the lack of new volume-driven model launches; whereas Mazda recorded lower sales (-19% YoY), with unchanged market share at 2% (9MCY18: 2%) after it fully delivered the discounted all-new CX-5 in May 2019, and is counting on face-lifted CX-5 and allnew CX-8 to push 4QCY19 volume sales.

BAUTO (OP; TP: RM2.75) is our sector top pick: We like the stock for its: (i) expected earnings recovery from the stream of all-new models, especially from its popular, face-lifted/turbo Mazda CX-5, (ii) superior margins which is above industry peers (average profit margin of c.9% vs. peers of c.2%), and (iii) steady dividend yield of 7.4%. BAUTO has launched its popular facelifted and turbo variants of CX-5 on 30th Sept, and all-new Mazda CX-8 on 1st Oct. BAUTO is also looking to bring in the all-new CX-30 (CBU from Thailand) and face-lifted CX-3 (CBU) in Dec 2019. Our TP is based on 13x CY20E EPS (at -0.5SD of its 3- year Fwd. historical PER).

Source: Kenanga Research - 23 Oct 2019

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