• April 2019 TIV fell 9% MoM and but was up 6% YoY at 50.0K units. On a cumulative basis, 4M19 TIV grew 6% YoY to 193.0K units compared with 182.2K units for 4M18. The YTD TIV was within our forecast of 603K (+0.8%YoY) for 2019, accounting for 32% of our full-year estimate.

• Local media reported that vehicles sold in April comprised 45.3K passenger cars and 4.6K commercial vehicles. Further details will be provided in our subsequent report after receiving the monthly breakdown sales figures from the Malaysian Automotive Association (MAA).

• The MAA highlighted that vehicle sales are expected to be higher in May and June 2019 boosted by the Hari Raya festive season promotional campaigns. Dealers will be giving out rebates, free gifts and other incentives to increase their car sales.

• We believe that the promotional campaigns for the festive season in May–June 2019 will be similar to the tax holiday in 2018, providing a temporary boost to vehicle sales. This festive period is seen as an opportune time for car manufacturers to clear and reduce their inventory to a healthier level as newer models will be launched in the later part of 2019 and in 2020. We have compiled some details on the promotional incentives from the major marques in the local automotive sector. These are shown in Exhibits 4, 5, 6 & 7.

• In the longer run, we believe that the sector will still be challenged by external and domestic economic uncertainties. Consumer sentiment has dropped while the unemployment rate has risen slightly in March 2019 compared with the first 2 months of 2019. Both the 1Q2019 MIER Consumer Sentiment and employment indices have eased.

• Challenges remain in spurring consumer spending for big-ticket items such as cars despite a slightly more attractive HP financing rates due to the recent OPR cut. We believe that a stronger growth in vehicle sales will ultimately depend on higher wage growth and improvement in economic conditions to lift households’ confidence levels.

• We look forward to the anticipated revised National Automotive Policy 2019 (NAP 2019) which is likely to be announced in 2Q19. The new policy will set the long-term direction of the automotive ecosystem, and also provide more clarity on the development of the third national car project.

• We have BUYs on Bermaz Auto (BAuto), Pecca Group, MBM Resources and Tan Chong Motor. Our HOLD calls are on Sime Darby and UMW Holdings while we are UNDERWEIGHT on APM Automotive and DRB-Hicom.

Source: AmInvest Research - 21 May 2019