Investment Highlights

• November TIV rose 5% MoM. The last two months of the year typically show a spike led by carmakers willing to offer steep discounts to rid of year-end inventory. Among them were Honda (+16% MoM), Toyota (9% MoM) and Nissan (+6% MoM). Perodua and Mazda saw flat MoM growth, while Proton saw a decline (-5% MoM).

• On a YoY basis, November results were flat. This is the fourth consecutive month of flat YoY growth as the performances of the mass-market names have come to either one of two extremes. Impact to the TIV from the YoY improvements in Honda (+18% YoY) and Toyota (+6% YoY) were offset by the double-digit YoY declines in Proton (- 34% YoY) and Nissan (-30% YoY).

• For the YTD period, the strongest recovery was seen in Honda (+22% YoY) and Toyota (+10% YoY). Nissan (-31% YoY) and Mazda (-24% YoY) were the biggest laggards, while growth for Proton and Perodua were flat. Proton is the biggest disappointment, having gained back little ground after seeing sales drop by a third in 2016.

• We note two points of interest from November:

1) Mazda maintained sales of >1K for a second month with support from the new CX-5 launched in October. This follows an 11-month stretch of depressed sales. The challenge will be to maintain numbers at this level for the next two months when a number its competitors forsake margins for a year-end boost in volume.

2) Perodua only saw a 1% MoM growth as buyers waited for the new Myvi, which was only launched mid-November. It should see better numbers from December as deliveries for the Myvi are ramped up (the model saw 20K in bookings for its first month, with 4.5K delivered to the first week of Dec). Perodua is also offering year-end rebates to drive sales for its 3 other models.

• The approval rate for auto loans was flat at 53% for October. The YTD average of 53% is a 2ppts improvement from the average of 51% last year.

• We maintain NEUTRAL on the automobile sector with BUYs on Bermaz Auto (BAuto) and Pecca Group, and HOLDs on DRB-Hicom, UMW Holdings, Tan Chong Motor Holdings, MBM Resources, Sime Darby and APM Automotive

• The catalyst for an upgrade on the sector to OVERWEIGHT would be a visible recovery in auto sales. This would rely on: (1) better consumer sentiment to drive the demand for new cars; (2) companies to be in a stronger financial position to catalyze demand with new models and better market visibility; (3) a better macroeconomic environment to ease the obtaining of financing for a new car. Conversely, we may downgrade the sector to UNDERWEIGHT if: (1) sales erode further on a severe decline in consumer sentiment; (2) a steep weakening of the ringgit that threatens companies' margins and necessitates price hikes; (3) a visible tightening by banks on auto financing to constrain the demand for cars.

Source: AmInvest Research - 20 Dec 2017