Malaysia Automotive: On Road to Recovery 2012

'''' Expect recovery in 2012 TIV at 6% growth yoy, as we expect higher household disposable income in 2012 (asset inflation wealth effect since 2009, 2012 Budgets and ETP implementation in 2012), as well as supply chain recovery boosting deliveries (UMW and TCM).

'''' Malaysia's automotive sector is essentially domestic driven, which is reaching maturing growth stage. Expect long term growth to trend down. Future growth opportunity coming from regional markets i.e. through exports (DRB with VW, TCM with Subaru & potentially Proton with Mitsubishi) or new market penetration (TCM into Indochina).

'''' Continued government policies to protect domestic automotive industry, benefiting Proton and Perodua (UMW & MBM) in terms of pricing advantages, with leading market shares.

'''' Continued government support for hybrid and EV technology, to address high fuel subsidies and environmental concerns, benefiting DRB (Honda Insight) and UMW (Toyota Prius & Lexus CT200h).

'''' We initiate the automotive sector with Overweight. Our Top Picks are:

1.'' DRB (BUY, TP RM2.90) ' Severely undervalued counter, realization of synergies between Pos and existing business units, VW regional hub ensuring long term earnings growth.

2.'' TCM (BUY, TP RM5.10) ' Leveraging on strong relationship with Nissan in penetrating Indochina market, increasing plant utilization from contract assembling for Subaru and Foton, as well as better positioned for supply chain recovery in 2012.

3.'' Proton (Trading Buy, TP RM6.00) ' Potentially Khazanah paring down 42.7% stake, triggering mandatory general offer. However, we view that Proton needs to have strong foreign partnership for technology transfer and fundings.

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Genting Malaysia (HOLD TP RM4.07)

RWNY To Expand Further?

'''' GenM announced that its subsidiary, Genting NY has entered into a non-binding letter of intent with Empire State Development Corporation to develop a 3.8m sq ft integrated convention and exhibition centre with up to 3,000 hotel rooms, costing at least US$4bn (~RM12.56bn).

'''' This project could contribute positively to GenM as RWNY will become a full-fledged integrated resort, drawing more visitors into the casino, especially businessmen and hotel guests. The development would also increase visitors' convenience to get into the casino.

'''' RWNY will undergo expansion as well, offering more than its current 5,000 machines to cater for the additional customers. No further information was given on the time frame of the development. However, assuming the development takes 3 years to complete, GenM will still have a healthy net gearing level of 0.1-0.3x.

'''' No changed to our forecast pending more information on the development, hence we reiterate our HOLD call with target price of RM4.07.

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HUAYANG (RM1.18 ' Buy on weakness): Consolidating upwards

'''''''' Technically, we think the stock is ripe for a stronger rebound as a break above its daily upper Bollinger band near RM1.20 would catalyse its share price performance.

'''''''' Once this level is taken out, prices are likely to charge towards the RM1.25 (weekly upper Bollinger band) and 52-wk high of RM1.37. More significant resistance is RM1.58 (123.6% FR). Immediate supports are RM1.04-1.14. Cut loss below RM1.04.

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WIJAYA (RM0.81 ' Trading Buy): Building its base before further breakout above RM0.95

'''''''' Wijaya is trying to retest its 52-wk high of RM0.85 following its recent horizontal breakout near RM0.80. A strong breakout will enhance further re-rate towards RM0.95 and RM1.00 in the medium term. MACD signal line is slowly picking up, suggesting that buyers are slowly making a comeback. RSI too is above the 50pts mark. The odds favour the bulls here as Wijaya is consolidating nicely above the weekly uptrend line and saucer base supports.

'''''''' Supports are near RM0.70-0.75. Cut loss if RM0.68 (15 Dec 11 low) is breached.