Highlights

MAA reported continued TIV momentum in July with 60.3k units (+2.91% mom; -11.93% yoy) from Raya delivery. The yoy drop was mainly due to high base effect, related to higher working days in Jul 2013 as Raya falls on Aug 13 (vs. Raya in end-Jul 14). YTD TIV growth slowed down to +3.0% yoy to 393.4k units, in-line with HLIB projected TIV of 680k. Despite the weaker consumer sentiments (due to OPR hikes), we expect sustained sales volume for the remaining months, as OEMs launched aggressive campaigns to boost sales.

Comment

Combined market share of national cars climbed back to 50.1% in July on aggressive campaigns in tandem with Raya Festive and National Day. The national marques likely to maintain combined market share given new launches of high volume demand models (i.e. Perodua AXIA and Proton GSC a.k.a. IRIZ) ahead.

Perodua (UMW and MBM) reported 19.1k sales (-0.1% yoy; +13.8% mom). Its new model AXIA, priced at RM24.9k- 45.3k, has received strong pre-bookings of 3,500 units, even without official launch. It is targeting 30k sales in 2014.

Proton (DRB) reported 11.0k units (+33.6% yoy; +9.8% mom). The new GSC model (starting price of RM40k) is expected to be launched soon after Perodua AXIA. GSC will come with high safety specifications as competitive selling advantages and allow immediate exports.

YTD, Toyota (UMW) achieved 59.4k sales (+11.1% yoy), from new models and aggressive campaigns. Toyota has increased 2014 sales target to 100k units (from 98.4k).

Honda (DRB) maintained sales momentum with 43.9k units (+57.3% yoy), on track to achieve 2014 target of 76k units, from newly launched City and Jazz.

Nissan (TCM) continued to suffer from stiff competition. YTD, sales has dropped 17.6% yoy, due to lack of new volume-driving models.

Other marques was mainly driven by Ford (Sime Darby), Mitsubishi (DRB & MBM), and Naza-Kia.

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 – under review).

Source:Hong Leong Investment Bank Research - 20 Aug 2014