Highlights

MAA’s April 2014 statistics showed sustained TIV with 58.7k units (-0.3% mom), attributed to strong foreign marques. The strong +11.9% yoy growth was due to low base in 2013, when the market faced uncertainties and withheld purchases ahead of General Election in May 2013. YTD TIV growth improved to 4.0% yoy, slightly outpaced our projected 3.5% yoy TIV growth in 2014. While MAA is expecting sustained mom TIV in May, we expect growth rate to reverse in June due to high base, thus not changing our assumption.

Comment

Perodua (UMW and MBM) market share sustained at 29.9% with 17.5k sales (-0.8% yoy; +7.4% mom). Given increasing cost of living (higher fuel price and ahead of GST implementation), we expect the new Perodua EEV model (targeted by Aug and likely to be competitively priced) to be well received.

Proton (DRB) sales remained weak with 10.1k units in April (-4.6% yoy; -18.1% mom) as it faced uphill task to reinstall consumer confidence. Proton is banking on its new GSC model (targeted by Sept), which is expected to have high fuel efficiency to drive Proton’s turnaround.

Toyota (UMW) recorded 9.2k sales (+38.6% yoy; -7.3.0% mom) from new model Altis and new Camry variant as well as aggressive promotional campaigns. However, it was somewhat affected by the newly launched Honda City.

Honda (DRB) achieved record monthly sales of 6.9k units (+114.5% yoy; +40.7% mom) or 11.8% market share in April, on maiden contribution of new City (launched end- March) We expect Honda sales to remain strong in May. Honda has plan to introduce new hybrid City CKD in 2H14, which will further strengthen its position.

Nissan (TCM) lagged further behind with 3.5k sales (-12.2% yoy; -12.5% mom) due to stiff competition especially from Toyota and Honda.

Other marques’ combined market share climbed to 19.6% in April (vs. 19.5% in March), driven by stronger sales of Ford (Sime Darby), Mazda (BAuto) and VW (DRB & MBM).

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

Overweight

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

We maintained Overweight on the Sector with Top Pick: MBM (TP: RM4.00) and DRB (TP: RM3.30).

Source: Hong Leong Investment Bank Research - 21 May 2014