Investment Highlights

• Bookings for the new Perodua Myvi are open from Thursday. The company revealed the main details for the model and it is expected to make its first public appearance at the Malaysia Autoshow. We note the key points as follows:

1) Priced to win. The new Myvi comes in 5 variants with the 1.3L ranging from RM44K to RM48K and the 1.5L from RM52K to RM55K. The top variant for 1.3L (the "Premium X", RM48K) is cheaper than the 1.3L Perodua Bezza (RM51K) and Proton Iriz (RM49K), but pricier than the 1.3L Proton Saga (RM44K). The top variant for the 1.5L ("Advance", RM55K) is cheaper than the 1.6L Proton Iriz (RM57K) and the 1.6L Proton Persona (RM58K).

2) The third-generation Myvi is longer and wider than the existing version, but has a lower roof. It is available in 6 colours including two new ones: Granite Grey and Peppermint Green.

3) The car is optimized for safer urban driving and savings on fuel costs. The highest spec variant is equipped with Advanced Safety Assist (ASA) which comprises Pre-Collision Warning, Pre-Collision Braking (automatic emergency braking), Front Departure Alert (notifies the driver when the car ahead has moved, in bad traffic) and Pedal Misoperation Control (prevents the car from accelerating when there is an object ahead). The ASA system relies on a front-facing camera placed behind the rear-view mirror. The EEV certification (with a fuel consumption of 20km/L) is significant given the concerns for the cost of living.

• Perodua is keeping its target of 202K units in sales for 2017, after factoring in numbers for the new Myvi. It has met 84% of this with 170K sold from January to October.

• We believe the new Myvi will extend the lifeline for this widely popular model, although cannibalization to the Perodua Bezza and tough macroeconomic conditions will pose challenges for Perodua.

• The Axia remains Perodua's bestseller, while the Bezza and Myvi take up equally important roles (the three accounted for 31%, 28% and 27% of Perodua's 1HFY17 sales respectively). Perodua anticipates strong average sales of 6K/month for the first three months for the new Myvi, compared to the average of 4.4K/month seen in 1H17.

• The stringent process for the approval of auto loans has taken its biggest hit on local marquees, where the rejection rate is said to be 50%. While the approval rate has improved in some months, it was still tepid at an average of 52% in the Jan-Aug period.

• We retain our vehicle sales projections of 205K/214K units for Perodua in FY17/18. Our numbers are consequently unchanged for UMW Holdings (HOLD, FV: RM5.20) and MBM Resources (HOLD, RM2.20), which hold a direct stake of 38% and 20% in Perodua respectively. Pecca Group Bhd (BUY, RM1.80) should continue to ride on its strong relationship to Perodua, being the sole supplier of leather seats for the carmaker.

• For UMW, we believe the immediate goals would be to fortify the positions of its core segments and dispose of the remaining O&G assets. FY18 would be an especially precarious year as it works to set a stronger foundation while counting on a more stable external environment.

• For MBM, it should aim to sustain the higher production volume (of its alloy wheel unit) that comes with the new Myvi. With this foundation in place, it would be able to attract new customers towards the end goal of making the alloy wheel unit profitable.

Source: AmInvest Research - 9 Nov 2017