Investment Highlights

• 2017 TIV fell 1% YoY to 576.6K units. This follows the 13% YoY drop in 2016 and is the second year TIV came below 600K.

• The volume gains in Honda (+19% YoY) and Toyota (+9% YoY) were offset by the declines in Nissan (-33% YoY) and Mazda (-22% YoY). The tepid performance of the domestic players (Perodua: -1% YoY, Proton: -2% YoY) was another negative factor as they still account for hefty chunk of the total TIV (46%).

• Perodua and Honda remained the leaders. Perodua maintained its market share (36% of total TIV) while Honda gained 5ppts (to reap 36% of the non-national side).

• We note four points of interest from December: 1) Mazda sales dropped to 711 units on a temporary dip in CX-5 sales. Mazda SUV sales dropped 37% MoM to 457 units in December due to the aggressive year-end discounting and promotions among its peers. Among those to see a double-digit MoM spike in 4WD/SUV sales were Volvo, Toyota, Subaru, Mitsubishi and Nissan. We understand Mazda's monthly sales will rebound to above 1K from this month, with a strong return for the CX-5 and support from several new models to enter soon. 2) TIV dropped 16% YoY to drag 2017 into negative growth. The MAA blamed this on floods in West Malaysia and excessive discounts given earlier in the year. The YoY decline was most notable for Nissan (-53% YoY), Proton (-34% YoY) and Perodua (-18% YoY). Nissan and Proton merely continued a trend of YoY declines, but Perodua saw the effect of a high base. Perodua was especially aggressive in Dec 2016 (when sales shot up 60% MoM to an all-time high of 25K units, exceeding the 21K seen four months prior when the Bezza was launched). 3) On a YoY basis, Mazda proved to be the exception with an 18% YoY growth. This was due to a low base: Dec 2016 sales of 603 units were one of its worst months in a long stretch of sales staying below 1K. 4) Proton lost out on the seasonal boost. Proton sales for the last two months were its worst results for the year.
• We project for a 2-3% TIV growth this year. A quick recap of our 1H18 outlook report from Dec 19: 1) Mass market players to see more intense competition. This will be the year to look out for the Perodua SUV, a mainstay of Honda. Perodua raised the bar with a Myvi that is cheaper than its comparables and has features to rival cars that are nearly double its price range. Toyota will soon launch the C-HR, its move to a stake in the fast-growing market of compact SUVs. Nissan has signaled that new models will come in the second half in a bid to rescue rockbottom margins. 2) Now is the time to see real reform in Proton. CEO Li Chunrong's priority will be to set the roots for Proton Boyue to enter by 2019. With no new models until then, the company has vowed to improve on the quality of its existing fleet and the customer experience. We are still anticipating details on Proton's long-term roadmap: the government has made a bold declaration that the company's annual sales could reach 500K within the next decade, anchored by the regional success of Proton Boyue. 3) Big-ticket items are still out of reach for most. Slightly more than half of loan applications for new cars are going through, as the average approval rate last stood at 53% for the Jan-Nov 2017 period. The government has held back from incentives directed at lifting the local automotive market for at least two years: as Perodua has been performing decently while efforts are underway to make Proton more self-sufficient.
• The next National Automotive Policy (NAP) could be announced later in the year, based on news reports. This would build on the existing NAP from 2014 that emphasized on energy efficient vehicles (EEVs), which are expected to account for 60% of vehicles sold this year from 52% in 2017.

• We maintain NEUTRAL on the automobile sector with BUYs on Bermaz Auto and Pecca Group; and HOLDs on DRBHicom, UMW Holdings, Tan Chong Motor Holdings, MBM Resources, Sime Darby and a SELL on APM Automotive.

Source: AmInvest Research - 24 Jan 2018