Highlights

As  expected,  MAA  reported  mom  drop  in  Aug  TIV  after Raya  Festive  in  end  Jul  (rushed  pre  Festive  delivery).  Aug TIV was  51.1k  units (- 15.17%  mom;  +0.04%  yoy)  and  YTD was  444.5k  units  (+2.66%  yoy),  in-line  with  HLIB  projected 2014  TIV  of  680k.  We  expect  stronger  sales  volume  in 4Q14,  from  new  launches  (Perodua  Axia  and  Proton  Iriz ) and continued  aggressive  campaigns by other OEMs.

Comment 

After strong Raya Festive sales in July,  Perodua (UMW and MBM)  reported  weaker  mom  sales  in  Aug  at  14.6k  units (+5.2%  yoy;  -23.8%  mom).  Newly  launched  Axia  (16  Sep) has received strong pre- bookings of  13. 5k units, due to the attractive  pricing  at  RM24.6k -RM42.5k  and  high  fuel efficiency at 21.6km/L. It  is  targeting  30k sales in 2014.

Similarly,  Proton  (DRB)  reported  weaker mom sales in Aug at 8.6k units (-27.0% yoy;  -22.0% mom), post Raya Festive. The new GSC model  Iriz will be launched on 25 Sep and an open  day  event  will  be  held  on  27-28  Sep  at  Shah  Alam Plant  in  order  to  attract  visitors  and  improve  consumer sentiments  towards  Proton,  with  visitors  given  a  rare opportunity to view its Manufacturing and R& D facilities. The starting  price  of  Iriz  is  expected  to  be  ~RM40k,  slightly below  Perodua  MyVi.  The fuel  efficiency is 18.2km/L.

With  new  models  and  aggressive  campaigns,  Toyota (UMW)  achieved  YTD sales of 67.2k  units  (+15.1% yoy),  on target to  achieve its   targeted  100k sales in 2014.   Toyota is expected to extend its sales campaigns towards year end, in order  to achieve  its sales target .

Honda  (DRB) maintained strong s ales of 6.7k units (+13.1% yoy;  +0.1%  mom)  in  Aug  and  YTD  sales  at   50.6k  units (+11.4% yoy), on track to achieve  2014  target   of  76k units, from newly   launched  City and Jazz.

Nissan  (TCM)  continued  to  suffer  from  stiff  competi tion. YTD,  sales  has  dropped  18.8%  yoy,  due  to  lack  of  new volume-driving  models.

Other  marques  were  mainly  driven  by  Ford  (Sime  Darby), Mazda (BAuto) 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  Neutral

• Positives  :– Potential export to regional  market, i.e. Malaysia as a hub; I mplementation  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 

• Since our previous downgrade of UMW to Hold (August), w e are  downgrading  the  Automotive  sector  to  Neutral,  with BUYs on MBM (TP: RM4.00)  and  DRB (TP: RM3.00).

Source: Hong Leong Investment Bank Research - 22 Sep 2014