- Toyota, Honda and Nissan are recalling nearly 3.4mil older model vehicles worldwide due to an airbag problem. This is due to malfunctioning inflators which cause the airbag to deploy abnormally during a crash.

- The supplier of the airbags is Japan-based Takata Corp – 2nd largest supplier of safety systems in the world. This is the biggest recall for Takata since 1995. Takata’s share price slid 9% in Tokyo after the announcement.

- On the flipside, Autoliv, which is the world’s largest manufacturer of airbags, saw its share price rising 1.6% in Stockholm. Autoliv has a 49:51 JV with Hirotako Holdings – owned by MBM – which manufactures and supplies airbags in Malaysia. Hirotako contributes c.45% to MBM’s operating profit.

- However, Hirotako mainly supplies to national makes, while key Japanese nonnational marques typically source airbags from Takata, which does not have a plant here but imports airbags into Malaysia.

- UMW Toyota officially stated that 18,700 units of the Toyota Camry and Toyota Corolla Altis manufactured between 2000-2003 are affected by the recall in Malaysia.

- TCM is still in the midst of determining the number of Nissan vehicles in Malaysia affected by the recall.

- We expect no impact to the local carmakers as cost of the recall will be borne by the vendor.

- Nonetheless, this development could have a positive bearing on Autoliv’s (and ultimately, Hirotako in Malaysia) ability to break into the non-national market in the future.

- Management had in past briefings indicated that Hirotako is exploring potential supply of airbags to a Japanese automaker in Thailand, though there has been no conclusion thus far.

- Maintain OVERWEIGHT on the sector. TCM (BUY, FV: RM6.40/share) remains our top pick, but MBM.

Source: AmeSecurities