Investment Highlights

• Feb 2019 TIV was down 18% MoM and 2% YoY to 39.8K units. TIV in February dipped due to the festive season and a relatively shorter working month.

• We note the following points from the February sales figures:

• 1) Perodua and Proton’s total sales declined MoM dragged by lower passenger vehicle sales. We witness a dip in total sales in both Perodua and Proton by 14% and 23% MoM respectively. Both manufacturers’ sales fell due to a slowdown in passenger vehicle sales, but by a smaller quantum in Perodua of -22% compared with a -40% decrease for Proton. In addition, the sales of the X70 SUV were stable at ~2.7K units/month while Perodua’s Aruz SUV registered a 131% jump in MoM sales volume. Aruz sales were in line with management’s expectation of 2.5K units/month. We are maintaining our sales growth projection of 1.5% for Perodua in 2019.

2) Toyota sales volume picking up but YTD market share remains stagnant. The best performer for Feb 2019 was Toyota, with an increase of 50% MoM and 18% YoY respectively. Toyota witnessed a jump of 93% in passenger cars, backed by the new Vios. Furthermore, Toyota has seen a spectacular 100% increase in its SUV sales, thanks to the Rush while the Hilux (pick-up) contributed a decent 16% of Toyota’s total sales volume. Toyota’s sales volume is improving, and its market share for Feb 2019 has climbed to 27%. Nevertheless, its YTD market share remains stagnant at 20% due to its weaker Jan 2019 position. With that, we believe that the volume increment needs to be much higher in order to win back some market share from Honda. In the foreseeable future, Toyota will be focusing heavily on volume-based models such as the Vios and Yaris to achieve its ambitious sales volume growth of 14% for 2019. For our estimates, we retain our sales growth projection of 8% for Toyota as we believe that the general market outlook is still not as vibrant as expected.

3) Mazda sales should normalize after a dip in Feb 2019. Mazda saw a drop of 57% MoM and 31% YoY, resulting in its lowest total sales volume in 9 months. This was due to the fall of 63% in SUV sales, mainly attributed by the CX-5. However, management has guided that sales volume should normalize in March to the 1.1K–1.2K level. Historically, sales have consistently declined in February every year. We expect sales to improve ahead as there are upcoming launches this year for the group; namely the M3, CX-8 and CX-30 with tentative launches in June, September and December respectively.

4) New launches to lift sales growth for Nissan this year. We witnessed a dip in total sales volume of 45% MoM and 15% YoY respectively for Nissan, due to a fall of 55% in passenger vehicle sales. However, the management guided that there will be new launches this year, which we believe will help the group capture a higher sales volume for FY19. We project a conservative sales growth of 5% for FY19 premised on the continuing strength in the sales of the Serena SHybrid MPV, in addition to the potential introduction of new models this year to fortify margins and rebuild the Nissan brand. Key models ripe for upgrades include the Almera, Teana, Grand Livina, X-Trail and Navara.

• The approval rate for loans on passenger cars stood at 58.2% in Jan, unchanged from the previous month and lower than the average rate of 59.6% for 2018.

• 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 - 20 Mar 2019