- MAA released March TIV yesterday: The industry registered a total sales volume of 57,622 units for March, slightly ahead of our estimate of 56,500 units. Nonetheless, this underpins our view of a strong rebound in March. The March TIV represents a 28% MoM and an 8% YoY growth. YTD, TIV has registered a 14% increase, but this is off a weak 1Q12 which was affected by supply shortage arising from the Thai floods.

- TIV target maintained: The 1Q13 TIV of 157,664 translates into an annualised volume of 630,656 units. Though this is still short of our forecast of 637K (+1.5% YoY), the numbers need to be taken into context with an exceptionally weak February. Launch of new volume models, e.g. new Vios, a lower variant Sylphy and affordable MPV models, should also support sales volumes in 2H13.

- Toyota led gains in March: Toyota recovered strongly, with 8,400 units sold (+71% MoM). However, this was still a contraction on a YoY basis (-17% YoY), off a strong base in 1Q12 which was driven by 3 new model launches through Nov 11-Jan12. On a YTD basis, Toyota is still underperforming the industry: -11% vs. industry’s +14%.

- Nissan increased market share to 9%: Nissan sold 5,313 vehicles in March (+40% MoM, +71% YoY). Annualised 1Q13 sales (despite a weak Feb) of 58,852 are slightly ahead of our FY13F volume of 54,323. We see potential upside to our earnings should the momentum be sustained in the next few months.

- Honda led gains on YoY basis: Honda saw March sales grow by almost 4-fold in March (YoY) and by almost 6-fold YTD. This was mainly the affect of an exceptionally weak base last year as Honda was worst hit by the Thai floods and the last to recover among key non-nationals.

- MAA is anticipating weakness in April numbers given consumers’ anticipation of a potential car price/excise duty reduction – political manifesto for the upcoming GE. Further clarity on this should be obtained after the elections. Any impact should be temporary – any reduction will be done on gradual basis over 5-7 years. Consumers are unlikely to hold back purchases for such an extended period of time. Furthermore, existing car owners (that trade in old vehicles for new ones) will see little benefit over the 5 years from any duty reduction as trade-in values will also be negatively impacted. The only real impact will be for entry level buyers, who account for c.15% of the market.

- Strength in sector earnings this year is not coming entirely from volumes, but also plant economies of scale, cheaper parts and a very favourable forex environment following a weaker JPY, and USD to a certain extent. TCM (BUY, FV: RM6.40/share) is our top sector pick: (1) Best proxy to a weaker JPY and USD; (2) FY13F volume: +50%, FY13F earnings: +116%; (3) Potential new contract wins in the contract assembly business. We also like MBM (BUY, FV: RM4.60/share) for its leverage to Perodua’s earnings, which will benefit from: (1) A weaker JPY; (2) Vendor price-down since Dec 12 – these will start to be reflected in 1Q13 earnings.

Source: AmeSecurities