Investment Highlights

• April TIV fell 20% MoM. MAA attributed this to the rush in deliveries by companies to meet their March year-end, changes to the excise duties for MPVs and SUVs, and the tightening of hire purchase loans by banks.

• We note three things of interest from the April numbers:

1. Sales of MPVs slid 22% MoM while SUVs declined 15% MoM. Recall that the government had reverted the excise duties on MPVs of 1.5 litres and below back to 60% from mid-April, after raising it by 5% to 65% at the beginning of the month. The price hike and subsequent flip-flop had evidently caused many to cancel or delay their purchases for the two segments. Honda was the hardest hit with total sales for the two segments falling 42% MoM to 2.7K units in April (from an average of 4.2K in the months prior).
2. Mazda sales improved for the second consecutive month, from the disastrous showing in February. Sales of 988 units in April denoted a slow climb towards the historical average of 1-1.2K units/month, this time driven by better sales for its passenger cars (Mazda saw the segment's best monthly result in one year). To encourage buyers, Mazda had raised its warranty coverage in February to five from three years (for all models except the BT-50 pickup) while the new launches included the 2017 Mazda 6 (mid-Feb) and 2017 M3 facelift (end-April).
3. Proton marked its sixth consecutive month of either zero or negative growth on MoM basis. Sales of its passenger cars continued to tumble to 4.7K units in April, the lowest since August last year. We reiterate that the Saga and Persona have contributed to the push in Proton sales above the 7K mark but this was only until January 2017, thereafter the effect has clearly waned.

• On a YTD basis, TIV rose 6% YoY largely due to the lower base. The most significant improvements were seen in Honda (+40% YoY) and Toyota (+56% YoY), as the two had raised their prices in January 2016 and saw poor sales in the months after. Perodua (+4% YoY) and Proton (+5% YoY) saw marginal improvements, while declines were seen in Nissan (-41% YoY) and Mazda (-14% YoY).

• On auto financing, the approval rate for auto loans improved slightly in March to 51% (from 47% in February).

The loan approval rate averaged 51% in the one year to March, and this is on par with the 2016 average (denoting that banks have remained just as strict) but lower than the average of 55-57% seen in the two years prior.

• MAA is projecting a TIV growth of 1.7% YoY this year. It said that the economic slowdown, lower consumer spending, cautious business sentiment and banks' stringent loan approvals will continue to exert pressure on sales volume. At this stage, it expects annual TIV growth to improve in 2018-2019 by 4.9-5.1% and then moderate to 2.0-2.1% in the two years thereafter.

• We maintain NEUTRAL on the Automobile sector with a BUY on Bermaz Auto (BAuto) and HOLDs on DRBHicom, UMW Holdings, Tan Chong Motor Holdings, MBM Resources and APM Automotive. While sales in May are expected to be flat from April, we should see a seasonal bump in the following month owing to Hari Raya Puasa promotions. Beyond that, we should see 2H sales to improve slightly contributed by various new launches focussed on that period.

Source: AmInvest Research - 24 May 2017