Highlights

The strong TIV growth of 9.2% yoy in June was within expectation, due to low base and aggressive campaigns for the Raya festival. YTD TIV growth improved to 6.2% yoy while 333.1k is within HLIB projected TIV of 680k (+3.5% yoy). We expect TIV growth to trend down towards 2H14 on higher base effect and weaker consumer sentiments in the near term after Bank Negara recently raised OPR by 25 bps.

Comment

Perodua (UMW and MBM) market share fell to 28.7% in June and 28.4% in 1H14, mainly due to intense market competitions and tightened bank lending policy (affecting lower income group). Lower end model Viva sales was affected significantly with high loan reject rate. Perodua is banking on its new EEV model by Aug-Sep to boost sales volume towards year end.

Similarly, Proton (DRB) was also affected by competition and high loan reject rate. Proton posted weaker market share of 17.2% in June and 18.9% in 1H14. DRB has set up a task group to oversee the turnaround of Proton. The upcoming GSC model will be an important milestone for Proton to rebuild consumer confidence on its product quality. Proton is working with Government for R&D grants.

Toyota (UMW) maintained its leading position among foreign OEMs with market share of 16.4% in June and 15.3% in 1H14, from strong demand of new models and aggressive promotional campaigns.

Honda (DRB) market share improved significantly to 12.5% in June and 11.2% in 1H14. YTD, Honda recorded 37.2k sales, on track to achieve its 76k target in 2014, banking on highly demanded City and newly launched Jazz. We expect upcoming launches of City and Jazz hybrid by end-2014.

Nissan (TCM) reported improved mom sales of 3.5k due to festive campaigns to boost sales. YTD, sales has dropped 15.8% yoy with market share of 6.6% (vs. 8.1% in 2013) due to intense competitions especially from Toyota and Honda.

Other marques’ combined market share climbed to 19.6% in 1H14, driven by strong sales of Mitsubishi (DRB & MBM), Ford (Sime Darby) and Mazda (BAuto).

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- 23 Jul 2014