Investment Highlights

• June 2018 TIV skyrocketed to 64.5K units, the highest monthly sales seen in 1.5 years or since Dec 2016, as the zeroization of the GST coincided with the Hari Raya season. Sales were up 50% MoM and 28% YoY on the back of massive gains by the major players (notably Toyota, Mazda and Proton) and carmakers in the higher price segments as well (BMW, Mercedes-Benz and Volkswagen).

• YTD sales were 1.8% higher YoY. We maintain a TIV projection of 2-3% for 2018 and 2.0% in 2019, with 1H18 sales meeting our expectation at 49%. The MAA cut its 2018 projection by 5K units to 585K units (from 2.3% YoY to 1.5% YoY). We believe the strong sales will continue up to August (as both buyers and sellers seek to maximize their gains from this period, more so with the expectation of higher prices upon the SST returning at its old rate), though the gains from this period would make up for the exceptional declines in the months to follow.

• We note the following points from the June figures: 1) Toyota saw an exceptional MoM gain due to the low base in May and recent launches to support its key segments. Key segments saw monumental gains (of 4-7x from the previous month; the passenger car, MPV, SUV and pick-up segments saw YTD highs) with especially strong numbers for the Hilux, Innova, Fortuner and C-HR. Toyota had launched the C-HR and two variants of the Hilux in March, and facelift versions of the Alphard and Vellfire in June. 2) Mazda also witnessed a strong showing in June to compensate for the previous month. Sales rose 146% MoM to 1.5K units with 81% comprising SUVs. We believe it was mainly supported by the CX-5 (the company benefits from an allocation of ~700 units of the model every month, against continuing strong demand for the SUV) and the Mazda 2 (which has helped lift passenger car sales to its best result in 5 months). 3) Nissan rode on the new Serena for a second month and the MPV segment dominated with a 31% share of total Nissan sales. Sales of 3K units in June is Nissan’s best since Dec 2016 and we believe it will continue to see strong deliveries at least to Sept, with 2.5K in bookings secured for the Serena MPV as of May and about ~900 of MPVs sold each month. 4) Perodua sales slipped slightly but we emphasize that its monthly sales of nearly 20K – a level which it has maintained for four months to June – is still an impressive feat. Perodua had been one of the first to offer a GST rebate shortly after the zeroization of the GST and saw strong sales in both May and June as a result. Its market share dropped to 30% in June (from an average of 43% in the Jan-May period) due to the huge increments among the other players, but it still leads with a YTD share of 40%. We reiterate that the company is focused on maximizing sales during the tax holiday and would only be incentivized to push the new SUV closer to the 4Q when sales could drop substantially upon the return of the SST. 5) Proton gained 51% MoM but was lower by 15% YoY. We caution that Proton sales are still unsatisfactory as it has recorded YoY declines for 10 consecutive months since Sep 2017. We believe the company is capitalizing on those seeking for the cheapest cars on the market, with key models such as the Proton Saga, Persona and Iriz now retailing from RM34K-RM43K.

• Companies to battle for pent-up demand during the tax holiday. Buyers are set to rush in during the 3Q before the sales and service tax (SST) returns in September and having held off before the election for better certainty on policies that would affect their income. Our checks with several dealerships in early June indicate that companies are offering substantial rebates and persuading customers to book as soon as possible in order to secure their cars during this short tax holiday. This is also an opportunity for companies to clear out unsold inventory. Among the recent launches taking take centre stage during this period are the Perodua Myvi and Bezza Gxtra, Toyota C-HR, Nissan Serena S-Hybrid, Honda Odyssey and Renault Captur.

• Car prices are expected to go up by a small quantum when the SST is reintroduced in September. The government announced on Tuesday that the SST will be set at 10% for sales and 6% for services. We note that the biggest beneficiaries during the tax holiday will also be the companies to see their sales decline most afterwards, as opportunistic buyers would have secured their cars earlier.

Source: AmInvest Research - 19 Jul 2018