Investment Highlights

• June 2019 TIV was down 30% MoM and 34% YoY to 42.5K units. On a cumulative basis, 6M19 TIV grew 2% YoY to 296.3K units compared with 289.6K units for 6M18. The YTD TIV was within our forecast of 603K (+0.8% YoY) for 2019, accounting for 49% of our full-year estimate. The dip in sales was not a surprise as: 1) most car buyers would have made their purchases during the Hari Raya promotional period; and 2) June was a shorter working month due to the Hari Raya festival.

• We noted the following points from June sales figures:

1) Perodua registered a total sales volume of 16.0K units (-30% MoM, -18% YoY). With a year-to-date (YTD) sales of 121.8K units, Perodua is currently well on track at 52% to achieving its recently updated higher 2019 sales target of 235.0K units. The passenger vehicle segment continues to be an anchor for Perodua, recording a sales of 13.0K units which accounted for 81% of its total sales. We believe that this was due to the ongoing demand for the Myvi and Axia and we expect this trend to continue for Perodua in the foreseeable future. The Aruz however, only sold a total of 1.5K units for June which was unsurprising due to a shorter working month. The UMW Group guided that Perodua has begun exports to a new market, the Seychelles with the official introduction of the Axia in the capital, Victoria.

2) Proton recorded the second highest sales figure for the year in June at 7.6K units sold (-28% MoM, +23% YoY). We continue to see steady deliveries for the new Iriz and Persona with over 5.3K units of passenger cars delivered throughout the month. Proton guided that the newer models have resulted in a total of 11.5K and 3.5K bookings being made for the new Persona and Iriz respectively. The sales of the popular X70 declined to 1.6K units in June and we believe that it will normalize to the 2.4–2.5K level in the upcoming months when it is back to business as usual with its deliveries. Proton managed to capture a market share of 18% in June and a YTD market share of 14.7%, trailing only marginally behind Honda of 14.9%.

3) Honda disappointed in June, registering a new low for the year at 5.4K units (-49% MoM, -53% YoY) in total sales. Honda is still holding on its position as the best-selling non-national carmaker, with 44.3K units sold YTD and a YTD market share of 14.9%. According to a local automotive newsletter, its biggest sales contributor is the Honda City, the most popular B-segment vehicle in the country. The City contributed to 34% or 15.0K units to overall sales of Honda. Following right behind is the HR-V and the CR-V at 20% and 14% of total sales respectively.

4) Toyota sold 5.2K units (-24% MoM, -55% YoY) in June. The UMWH management guided that the decline was mainly due to a higher base from accelerated purchases for Hari Raya. It also highlighted that the Yaris hatchback proved itself to be a volume-driven model, having joined the Vios and Hilux as Toyota’s top three best-selling models for the month. YTD, Toyota managed to garner a market share of 10.5% and is runner-up behind Honda in the non-national segment. We believe that the volume increment needs to be much stronger in order to win back some of the market share from Honda. In the foreseeable future, Toyota will be focusing heavily on volume-oriented models such as the Vios and Yaris to achieve its ambitious sales volume growth of 14% for 2019. For our estimates, we retain our conservative sales growth projection of 8% for Toyota as we believe that the general market outlook is still not as vibrant as what UMW is expecting.

5) Mazda registered tepid sales of 0.8K units (-23% MoM, -46% YoY) in June. The decrease was due to lower sales in passenger cars and SUVs at 0.1K units (-36% MoM) and 0.7K units (-20% MoM) respectively. We expect sales to improve ahead as there are upcoming launches this year — the CX-5 CKD facelift, CX-8 CKD and CX-30, tentatively in September, October and December respectively.

• The approval rate for loans on passenger cars stood at 62.1% in May, an increase of 0.5% from April and higher than the average rate of 59.6% in 2018.

• We maintain NEUTRAL on the automotive sector. We believe that the sector will be challenged by external and domestic economic uncertainties in the long run. A strong growth in vehicle sales will ultimately depend on higher wage growth and improvement in economic conditions to lift households’ confidence levels. We have BUYs on BAuto, Pecca Group, MBM Resources and Tan Chong Motor. Our HOLD calls are on Sime Darby, UMW Holdings and DRB-Hicom while we are UNDERWEIGHT on APM Automotive.

Source: AmInvest Research - 19 Jul 2019