Investment Highlights

• In February 2020, the auto sector recorded a TIV of 40.4K units (-5% MoM, +1% YoY). We believe that the lower sales in February 2020 compared to the previous month was due to delays in new model launches and weaker demand weighed down by the Covid-19 pandemic.

We are revising our 2020 TIV forecast to 520K from 610K units after factoring in a much slower consumer discretionary spending on big-ticket items due to the Covid-19 pandemic which has resulted in macroeconomic uncertainties. We expect non-national carmakers to be impacted more than national marques due to a reduced propensity to purchase pricier and more premium products in the midst of current uncertainties.

• We note the following for major car marques in February’s sales figures:

1) Perodua registered a total sales volume of 18.9K units (+8% MoM, +10% YoY) in February. The Aruz SUV sold a total of 1.3K units for the month. Perodua highlighted that it plans to nearly double its spending in investments for 2020 to RM1.1bil from RM569mil in 2019. The bulk of the investments will be utilized for plant modernization, expansions as well as preparation for a new model, which we strongly believe to be the Perodua D55L B-segment SUV.

2) Proton delivered 10.0K units (+17% MoM, +89% YoY) in February, including 2.0K units for the X70 with more than 7,000 bookings in total. Saga continued to be the best seller with a total of 3.9K units sold for the month. Proton successfully launched its X70 CKD on 13 February 2020 with a marginal price reduction. The X70 CKD’s price ranges from RM94.8K to RM123.8K in 4 variants.

Proton’s market share surged higher in February to 25.0%, reaching its highest level in 77 months.

3) Honda sold a disappointing 1.8K units (-71% MoM, -71% YoY) in February and we believe that this was due to pricing approval issues for a few models, namely the City, Jazz and the CR-V. The lower demand could have also been impacted by the upward price revision of 5–9% due to the changes in the tax structure for Honda’s CKD products. Honda’s current market share of 9.4% YTD puts it in third place behind national carmakers Proton and Perodua.

The Honda Civic 2020 CKD facelift was launched on 26 February 2020 after orders were open for five months, before the pricing was approved from the government. It is priced from RM114.0K to RM140.0K in 3 variants. Prefacelift pricings were RM108.0K to RM129.0K.

4) Toyota sold a decent 4.0K units (+9% MoM, -15% YoY) in February. The 15% YoY drop was due to a high base in 2019, when the group’s mainstay, the Vios 2019 was just launched. UMWH management highlighted that Toyota’s top three best-selling models for the year were the volume-driven Vios, Yaris and Hilux, comprising about 82% of its total sales.

5) Nissan recorded a multi-year low sales volume of 1.0K units (-24% MoM, -6% YoY) in February. We strongly believe the declining performance was due to Nissan’s unattractive product line-up, uncompetitive pricing and a lack of new launches. We note that the Serena S-Hybrid sold a total of 0.4K units for the month.

6) Mazda’s posted a sales volume of 1.1K units (+0% MoM, 58% YoY) in February. In conjunction with Mazda’s 100th year anniversary, the group has launched 3 new models on 4 March 2020 – namely the Mazda 2, CX-9 and MX-5. The models launched are CBUs with the following pricings:

Mazda 2 – RM104K; CX-9 – RM320K to RM337K in 2 variants; and MX-5 – RM266K to RM268K in 2 variants.

• The approval rate for loans on passenger cars stood at 63.5% in January, an increase of 9.7% from December and higher than the average rate of 61.4% in 2019.

• We maintain our NEUTRAL stance on the auto sector with a TIV projection of 520K units for 2020. We have BUYs on DRB-Hicom (FV: RM1.87) and MBM Resources (FV: RM3.18). We are confident that Perodua and Proton will continue to underpin the auto sector in 2020 as their products are more attractive in pricing and provide better value for money. Meanwhile, we retain our bearish stance on foreign and premium car brands.

Source: AmInvest Research - 25 Mar 2020