Investment Highlights

• We recently upgraded the auto sector to OVERWEIGHT based on our recent revision in recommendation for Sime Darby to BUY. Our upgrade of Sime Darby was due to undemanding valuation arising from the share price weakness. We now have 6 BUYs out of the 8 stocks under our automobile sector coverage.

• July 2019 TIV rose 20% MoM but down 26% YoY to 50.9K units. The YoY decrease in July was due to a high base from 2018’s tax holidays. Cumulatively, 7M19 TIV declined by marginal 3% YoY to 347.2K units from 358.1K units in 7M18.

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

1) Perodua registered a total sales volume of 19.9K units (+24% MoM, -16% YoY). The Aruz delivered about 2.8K units for the month thanks to an improved production process and higher daily deliveries. This has led the Aruz to be the most popular SUV in Malaysia. This was mainly attributed to a reduced waiting time for the Aruz to 1–1.5 months from the usual 2–2.5months. For 7M19, 17.9K units of the Aruz have been sold.

2) Proton delivered 8.6K units (+13% MoM, +6% YoY) in July, including 1.9K units sold for the X70. The total 7M19 sales for Proton stood at 52.2K units, recording a growth of 48% YoY. This translated into a market share of 16.9% and slightly above 15% on a monthly and YTD basis respectively. Proton successfully ousted Honda and claimed its position as the runner-up in YTD market share. With the sustained momentum and deliveries from volume-oriented models like the Persona and Iriz, we strongly believe that Proton will end 2019 in the second place, behind the national titan Perodua. Proton is the only major carmaker that registered a YoY improvement in July 2019 despite a high base last year from the tax holidays.

3) Honda recovered in July, delivering 7.5K units (+40% MoM, -41% YoY) in total sales. YTD, Honda sold a total of 51.8K units compared with 64.2K units in 7M18. With that, we note that Honda dropped to third place in its YTD market share position at 14.9%, behind national carmakers Perodua and Proton. We look forward to the all-new Honda City launch in 2020 as it will serve as a strong boost to its sales volume given that it is the top-selling B-segment vehicle in the local automotive space.

4) Toyota sold a decent 5.7K units (+8% MoM, -38% YoY) in July. The Vios, Yaris and Hilux were Toyota’s best-selling models throughout the month, contributing to circa 70% of its total sales. We witnessed stronger deliveries of Toyota’s passenger vehicles sub-segment, recording 3.0K units for the month compared to a monthly average of 2.9K units in 6M19. We continue to be apprehensive on Toyota’s outlook in CY2020 due to our expectation of lower new launches next year while we anticipate competition to heighten in the passenger vehicle space.

5) Mazda saw its sales volume normalizing after a slowdown in June, registering a total sales of 1.0K units (+22% MoM, - 17% YoY) in July. The increase was backed by higher sales in SUVs at 0.8K units (+13% MoM). We expect sales to improve ahead as there are upcoming launches this year for the group; namely the CX-8 CKD, CX-5 Turbo and CX-30.

• The approval rate for loans on passenger cars stood at 65.0% in June, an increase of 3.9% from May and higher than the average rate of 59.6% in 2018.

• We strongly believe that the national marques’ sales volume will continue to be the key driver of the local automotive space. With the recent launch of the Saga, we are confident that Proton will be able to maintain its sales volume momentum through the remaining months of the year while Perodua will continue to assert its dominance as it protracts its position as the leader of market share in the local automotive space.

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

Source: AmInvest Research - 22 Aug 2019