Highlights

MAA’s Jan 2014 data showed weak start to the year with TIV sales of 50.3k (-8.7% yoy; -16.9% mom) after the end of 2013 Year-End promotions and consumers withholding purchases ahead of NAP 2014 announcement by mid-Jan 2014. We expect stronger sales for the remaining year of 2014 on aggressive campaigns and new launchings with 2014 TIV growth of 3.5% yoy, driven by Proton and Honda.

Comment

Perodua (UMW and MBM) suffered from a weak start to the year with only 12.1k units (24.1% market share) in Jan after recording strong sales of 18.2k in previous month. Perodua’s new manufacturing plant is expected to commence in 2H14, with the new Viva replacement model as the maiden roll out.

Proton (DRB) sales remained weak with 9.7k units (19.4% market share) in Jan. Proton is facing tough competitions from other OEMs offering discounts and introducing lower priced models. Currently Proton is entering its second year of restructuring, which is to focus on global expansion (including export market), banking on its expected new GSC model by April as well as Hybrid model by year end.

Despite management guidance of strong new Vios orders (20k units since launch), Toyota (UMW) sales dropped significantly by 35.4% mom to 6.6k units in Jan, likely due to intense competition among the foreign OEMs as well as consumers withholding purchases ahead of NAP 2014.

Honda (DRB) reported strong sales of 6.4k units, closing the gap to Toyota. Honda is targeting 76k units sales in 2014, banking on new City (April) and positioned to benefit from NAP 2014, which only extend tax exemption on CKD hybrid and Electric vehicle. Currently, Honda is the only OEM offering CKD hybrid models with established hybrid manufacturing facilities in Malaysia.

Nissan (TCM) sales was only 4.5k units, relatively stable mom. Nissan is targeting 60k units in 2014, which is relatively hard to achieve target, given the lack of new highly demanded model.

Risks

• Prolonged tightening of banks’ HP rules.
• Slowdown in the Malaysian economy.
• Global automotive supply chain disruption.
• Sudden jump in fuel prices and interest rate.

Rating

Neutral

Positives :–

• Potential export to regional market, i.e. Malaysia as a hub;
• Implementation of Energy Efficient Policy; and
• Implementation of Annual Car Check Policy.

Negatives :–

• Tightening of bank lending rules and rise in inflation;
• Instability of global automotive supply chain; and
• Depreciation of RM.

Valuation

Top Pick: Maintain BUY on DRB (TP: RM3.38) and MBM (TP: RM4.52).

Source: Hong Leong Investment Bank Research - 21 Feb 2014