Highlights

The CEO of Perodua (UMW & MBM), Datuk Aminar Rashid stated that the national marque will not follow Proton’s move to cut car prices, but to maintain its strategy of lowering the cost of car ownership for Perodua owners. Perodua launched its S-Series variants, which is RM2,000 cheaper, with improved specifications and 3 years free service package worth of RM4,500 – 5,600.

Perodua has achieved the first stage of cost savings of 12% at end FY12, and targeting to reduce Perodua cost ownerships by 30% by 2016, in line with the government’s direction under its election manifesto. Perodua has also set up a pre-owned vehicle (POV) division that will preserve the second-hand value of cars. The first centre was set up in Subang since early 2013, and expected to set up another 6 centres across whole Malaysia.

Proton (DRB) recently introduced new Proton Saga SV, which is 12% reduction in price compared to the existing Saga. More than 6,000 orders were booked over 2 weeks period. Proton is currently working on a program to reduce the prices of all its existing models in phases.

The slash in car prices were done after successful cost cutting measurements with vendors (through business reengineering program), without compromising on quality and features or at the expenses of margin.

Comment

We expect continued trend of lower car ownership measurements (in terms of car selling price, free maintenance & warranties, free gifts, etc), as various manufacturers embarks on cost-cutting measurements and strategize to grab higher market share.

The successful cost-reduction program of Proton and Perodua is expected to support the national marques in regaining their market shares (vs. foreign marques), along with the improved quality of the cars.

However, we believe consumers may still be vary of the upcoming revised NAP announcement, which will provide a clear picture of government’s commitments towards the development of automotive industry and car pricing.

Risks

• Slowdown in the Malaysian economy.
• Global automotive supply chain disruption.
• Sudden jump in fuel prices and interest rate.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: Buy on DRB Hicom (TP: RM3.36) and MBM Resources (TP: RM5.00).

Source:Hong Leong Investment Bank Research- 1 Jul 2013