Highlights

MAA’s May 2014 statistics showed TIV of 55.9k units, a drop of 4.8% mom due to weakened market and tightening measures implemented by banks. The strong +12.7% yoy growth was due to low base in 2013, when the market faced uncertainties and withheld purchases during General Election in May 2013. YTD TIV growth improved to 5.7% yoy, outpaced our projected 3.5% yoy TIV growth in 2014. We expect continued growth trend in June, before reversing in July due to high base, thus not changing our assumption.

Comment

Perodua (UMW and MBM) market share fell slightly to 28.8% with 16.1k sales (-0.8% yoy; -8.2% mom) in May and 28.3% with 77.7k sales YTD. The recent concluded 10% increase in staff benefits (including wages in Collective Agreement), will be offsets by the improved cost structure of the new efficient Global Manufacturing facility. The new Perodua EEV model (targeted by Aug and likely to be competitively priced) is expected to be well received.

Proton (DRB) sales sustained at +0.6% mom with 10.2k units in May, but improved 12.1% yoy due to low base in May 2013. The recent appointment of Former Prime Minister Tun Dr. Mahathir as Proton Chairman is expected to assist in the restructuring of the national car group, and turning around its profitability.

Honda (DRB) has achieved another record month sales with 7.4k units (+116.6% yoy; +13.2% mom) or 13.2% market share in May, on strong sales of new City (launched end- March). We expect Honda sales to remain strong in June as it launched aggressive promotion campaigns in tandem with Raya festive (discount up to RM10k for certain models).

Both Toyota (UMW) and Nissan suffered lower mom sales due to competition from newly launched Honda City. Toyota recorded 8.1k sales (-11.3% mom), while Nissan recorded 3.1k sales (-10.0% mom). All the marques have started aggressive campaigns to recapture market share.

Other marques’ combined market share climbed to 19.7% in May (vs. 19.6% in Apr), driven by sustaining sales of Mazda (BAuto), Ford (Sime Darby), and Mitsubishi (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 BUYs on MBM (TP: RM4.00), DRB (TP: RM3.00) and UMW (RM12.55).

Source:Hong Leong Investment Bank Research - 20 Jun 2014