Investment Highlights

• Dec 2018 TIV was flat MoM and down 12% YoY at 48.2K units. TIV was flat MoM as the usual year-end gains were seen for most key players but a drop in Perodua (down 13% MoM) mitigated this. Perodua sales moderated close to its average for the year, having maximized sales in the two months prior to December (when it shot up to as high as 21K).

• The YoY drop in Dec is consistent with the post-tax holiday climate. Monthly sales have been lower or flat on a YoY basis every month since Sept. There a few exceptions that saw a YoY improvement in Dec: Nissan and Mazda (owing to their low base in the previous year), and Proton saw a small bump from the release of the X70 SUV that month (it sold 1.3K units of the X70 in Dec, which accounted for 24% of its sales of 5.6K).

• 2018 TIV rose 3.8% YoY to 598.7K units. The 2018 sales were the best level seen since 2015 and above our projection of 2–3% growth. This gain was largely due to the 3-month tax holiday which accounted for 33% of sales last year. Average sales during that period spiked to 66K/month from the year’s average of 49K/month. We note that the weightage from the tax holiday was close to industry average for most of the key players. The exceptions were Toyota (45%), Volvo (43%), Volkswagen (46%), Renault (48%), Subaru (53%) and Lexus (56%).

• We note the following points from the Dec sales figures: 1) Sales in the last three months of the year averaged higher than we expected. Average sales of 48K/month for OctDec vs. our projection of 45K/month. Most players saw fair sales during this period, owing to a strong reception to yearend promotions and growing ease for customers to obtain car loans. The average approval rate for the 6M to Nov 2018 stood at 64.6% vs. 53.8% in the first five months of the year and 52.9% for 2017. 2) The best performers for 2018 were Perodua (+11% YoY), Mazda (+65% YoY) and Nissan (+11% YoY). Perodua was the exception in that it saw consistent and strong sales from the beginning of the year (when consumers held back from buying before the election), owing to a launch of the popular Myvi in late 2017. Mazda and Nissan enjoyed a low base, both saw growth in 2018 after two consecutive years of double-digit YoY declines. 3) Other key players saw single-digit drops: Proton (-9% YoY), Honda (-7% YoY) and Toyota (-6% YoY). Proton had no catalysts apart from the tax holiday and the late entry of the X70. It registered its lowest annual sales in years (with the monthly average now at a historical low of 5.4K/month) but things should improve with the earliest deliveries of the X70 in this first half of 2019. Honda and Toyota came off a strong 2017 and both held from launching new models until they were clear of the general election and tax holiday. We note that the two took different strategies: Toyota leaned heavily on the tax holiday for volume, while Honda sales were generally steady at 7-8K/month excluding the tax holiday and the dip in the one month after.

• We cut our TIV projection to 0.8% for 2019 to 603K units from 2.0% previously. The sector is lagging with no major organic catalysts after receiving a boon from the tax holiday in 2018. Growth in 2019 TIV will very much depend on the performance of volume-oriented players, namely Perodua, Honda, Toyota, Nissan and Mazda. We have BUYs on Bermaz Auto (BAuto), Pecca Group, MBM Resources and Tan Chong Motor. We have HOLDs on Sime Darby, UMW Holdings and DRB-Hicom, and UNDERWEIGHT on APM Automotive.

Source: AmInvest Research - 18 Jan 2019