- TC Euro Cars Sdn Bhd (a unit of listed Tan Chong Motor) launched a refreshed Renault Fluence model yesterday. The Fluence is a 2-litre C-segment sedan positioned to compete against the Mazda 3, Honda Civic, and Toyota Altis, among others.

- The model was first launched in May 2014 at a much higher price tag of RM115K. However, sales have been quite poor at an estimated average monthly sales of 25 units, which is well below the typical minimum of 1000 units/annum (or circa 80 units/month) volume required to justify local assembly of a model.

- Pricing for the refreshed model was reduced quite substantially at RM109K (for the entry variant), which is circa 6% cheaper than the previous model.

- Why is this significant? It seems as if Renault is trying to make a big push with the cheaper, refreshed Fluence judging by poor sales with the initial model and the big reduction in pricing.

- More importantly, this model is now competing head on with the Mazda 3 CKD, which was also launched days ago. Pricing for the Mazda 3 CKD starts from RM106,105 OTR before insurance, and is sold in 2-litre variants.

- Both Mazda 3 and Fluence undercut pricing of C-segments by the key Japanese marques, i.e. the Civic 2-litre starts from RM121,103 and Altis 2-litre starts from RM133,715.

- Mazda is targeting volumes of 3,000-4,000 units per annum for the Mazda 3 (both CBU and CKD combined) and there could be risk to this target if competing models can sway demand significantly.

- Nonetheless, our forecast is conservative at this point and is at the lower end of the range at 3,300 for FY16F. The Mazda 3 is targeted to account for just over 20% of FY16F target sales for Mazda and is one of the key models that is expected to drive growth for BAuto (BUY, FV: RM4.20/share) in FY16F.

- Our preference has shifted to MBM (BUY, FV: RM3.80/share) given the more meaningful upside to our fair value. There is also upside risk to our forecast given the stronger-than-expected 1Q15 TIV registered by Perodua (i.e. circa 10% ahead of our forecast of 208K, if annualised). At the current market cap, MBM’s stake in Perodua is valued at just 9x FY15F earnings, a steep 40% discount to UMW, which owns a 38% stake in Perodua.

Source: AmeSecurities Research - 27 Apr 2015