Highlights

As cautioned, MAA released disappointed May (election month) TIV at 49.6k (-14.87% yoy; -5.44% mom), as consumers waited for further updates, in anticipation of reduced car prices. Year-to-date, TIV increased by +6.20% yoy due to low base in early-2012 (driven mainly by Perodua, Honda and Nissan). We maintained our growth expectation of +3.5% yoy for 2013, as we expect growth to trend down in 2H13 due to higher base.

Comment

Perodua (UMW and MBMR) reported sales of 16.7k units (- 4.4% yoy; -5.3% mom) in May, better than industry growth. Sales are expected to remain strong, following the launch of S-Series with reduced pricing and value after service package.

Proton (DRB) sales was only 9.1k units (-36.5% yoy; -14.4% mom), lowest monthly sales since June 2007. Proton has recently launched lower priced Saga SV, to regain its market share. Preve hatchback will only be launched after Raya festive. Chairman has reaffirmed the collaboration between Proton and Honda.

Toyota (UMW) sales improved 15.4% mom to 7.6k units as it embarked on aggressive pricing strategy and promotions to catch up in market share. The upcoming Vios replacement model has been confirmed to launch only after Raya festive (due to high demand back in Thailand).

Honda (DRB) sales also improved 5.5% mom to 6.9k units on discounts and offers. The demand for new CRV replacement model remained strong with more than a thousand sales monthly. Honda has targeted total sales of 64k units (+83.1% yoy) for 2013, on new model launches and enhanced services.

Nissan (TCM) sales dropped 9.3% mom to 7.3k units on weakened consumer sentiments as well as competitions from other marques. The strong yoy growth of +22.9% was mainly due to strong demand of Almera. Management is targeting sales of 60-65k units (+72-86% yoy) for FY13, banking on strong Almera sales and new launches in 2H13 (Grand Livina, hybrid Serena MPV and Leaf EV).

Risks

• Slowdown in the Malaysian economy.
• Global automotive supply chain disruption.
• Sudden jump in fuel prices and interest rate.

Rating

Overweight

Positives –

• Potential export to regional market, i.e. Malaysia as a hub.
• Implementation of Energy Efficient Policy.
• Appreciation of RM.

Negatives –

• Implementation of responsible lending guideline
• Instability of global automotive supply chain.

Valuation

Top Pick: DRB (TP: RM3.36) and MBM (TP: RM5.00).

Source: Hong Leong Investment Bank Research - 20 Jun 2013