Investment Highlights

• Jan 2019 TIV was up 1% MoM and up 9% YoY to 48.5K units. TIV was lifted by a stellar performance of Perodua and Proton, which collectively accounted for 56% of the market.

• We noted the following points from the Jan sales figures:

1) Uplift from new local SUVs. Perodua (up 14% YoY) and Proton (up 43% YoY) benefited from the Aruz and X70 respectively. For Proton, it sold a total of 6.9K units in Jan (its highest monthly sales since mid-2017, excluding results from the tax holiday period) with 2.7K units or 40% comprising the X70. Proton will rely on delivering the rest of the 15K in reported bookings and a facelift of the Iriz marked for launch later this year.

For Perodua, the Aruz saw deliveries delayed to the final day of the month (two weeks after a launch in mid-January), resulting in sales of only 1.1K units vs. the targeted average of 2.5K units/month. Likewise, Perodua should enjoy better numbers ahead as it banks on the reported bookings of 8K units for the Aruz as of end-Jan. We retain our projection of a 1.5% volume growth for Perodua in 2019 with the Aruz accounting for ~11% of total sales. Volume would still be anchored to the Myvi and Axia, while the Aruz will serve to boost margins.

2) Mazda continues its strong streak that follows the tax holiday with sales of 1.6K units in Jan. Mazda has seen average sales of 1.5K units/month from Sept 2018 to Jan 2019. It will count on the reported backlog 3K it had in early- 2019, and later lean on the new Mazda 3 (mid-2019) and CKD Mazda CX-8 (2HFY19). Sales should taper off from March but we believe Mazda is able to outperform its critical threshold of 1K units/month.

3) A mixed showing by the other titans. Honda (down 8% YoY), Toyota (down 12% YoY) and Nissan (flat YoY) performed relatively worse. A closer look at the three players shows diverging concerns.

For Honda, it has commendably maintained sales at an average of 7-8K units outside of the tax holiday period. Honda SUV sales in January actually strengthened visibly (to 3.2K units from an average of 1.9K units/month in 2018) as a facelift HR-V launched in the middle of the month help defend its sales from the threat of the SUVs launched by the local carmakers though the HR-V does not compete directly with the Proton X70 or Perodua Aruz, which are better matched by the Honda CR-V and BR-V respectively. However, the distinction from the two proved positive for Honda. Sales of Honda passenger cars dropped in the same period and we believe it is keeping its trump cards (potential launches in this segment include a new Accord) for the second half of the year.

For Toyota (down 12% YoY), we believe numbers should be stronger from Feb with support from the Vios (for which deliveries only commenced mid-January; consequently, total sales for Toyota passenger cars of 1.3K were well below the targeted 2.5K units/month for Vios alone). The combined forces of the Vios and Yaris (in 2Q) will support Toyota’s move to reclaim some of its market share from Honda. We retain a projection of an 8% annual growth for Toyota (vs. the company’s target of 14%) as it will be an uphill battle for Toyota to build and sustain momentum. Toyota leaned heavily on last year’s tax holiday, deriving 45% of its sales from that period.

• The approval rate for loans on passenger cars rose to an annual average of 59.6% in 2018 from 52.9% in 2017.

• We retain a TIV projection of 0.8% for 2019 to 603K units. 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 volumeoriented 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 - 22 Feb 2019