Investment Highlights

• In March 2020, the auto sector recorded a depressed TIV of 22.5K units (-44% MoM, -59% YoY). The lower sales in March was due to the movement control order (MCO) which started on 18 March 2020, causing businesses to stop operating nationwide. As the MCO is extended to the 4th phase – up until 12 May 2020 with the possibility of a further extension – showrooms are all closed. This has resulted in zero sales for April 2020.

• We note the following for major car marques in March’s sales figures: 1) Perodua registered a total sales volume of 8.6K units (-54% MoM, -63% YoY) in March. The Aruz SUV sold a total of 0.7K 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 3.3K units (-67% MoM, -47% YoY) in March, including 0.8K units for the X70. The X70 achieved the distinction of being the best-selling SUV in Malaysia for 1Q2020 with 4.1K units sold in the quarter. Proton’s drastic drop in sales volume was also due to the same reason, the MCO, which has affected all of its sales outlets due to their closure since 18 March 2020.

Proton’s market share slid in March to 8.1% resulting in a YTD market share of 20.6%.

3) Honda sold a total of 3.3K units (+87% MoM, -62% YoY) in March, and in term of sales of non-national marques, it was the outperformer for the month. We believe that this was due to the pent-up deliveries after resolving the pricing approval issues that lasted for more than four months.

However, we deem this to be only temporary. We expect a lower demand moving forward with 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 10.5% YTD puts it in third place behind national carmakers Proton and Perodua.

4) Toyota sold a decent 2.8K units (-30% MoM, -53% YoY) in March. The substantial 53% YoY drop was due to a high base in 2019, when the group’s mainstay, the Vios 2019, was just launched, leading to a higher sales volume. UMWH management said that Toyota’s top three best-selling models for the month were the volume-driven Vios, Yaris and Hilux, comprising about 74% of its total sales.

Our checks with UMW revealed that the group’s aerospace division has obtained the necessary approvals for a 24-hour operation of its facilities. This will mitigate the lower revenue from the temporary halt of fan cases production in the first two phases of the MCO.

5) Nissan recorded a multi-year low sales volume of 0.3K units (-68% MoM, -84% YoY) in March. 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 0.1K units for the month. 6) Mazda posted a sales volume of 0.5K units (-53% MoM, -48% YoY) in March. In a recent conference call with the BAuto, the management highlighted that it is not in a hurry to restart its Inokom production plant due to the Covid-19 pandemic. The group plans to wait until the number of daily new cases taper to a pre-MCO low before resuming operations.

• The approval rate for loans on passenger cars stood at 53.3% in February, a decrease of 9.8% from January 2020 and was lower than the average 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 expect Perodua and Proton to continue to lead its peers in terms of market share in 2020 as their products are seen as more attractive in pricing, thus providing better value for money. Meanwhile, we continue to have a bearish outlook on the sales of foreign and premium car brands.

Source: AmInvest Research - 30 Apr 2020