Highlights

As  expected,  MAA  reported  weak  September  TIV  at  47.8k units  (-13.1%  yoy;  -6.6%  mom),  given  cons umers  were waiting for the launch of Perodua Axia (15 Sep) and Proton Iriz  (25  Sep).  The  combined  market  share  of  the  national marques dropped to historic al low  of 42.3% only.  YTD,  TIV was  492.3k  units  (+0.9%  yoy)  vs.  HLIB’s  expectation  of +3.5%  yoy.  We  expect  stronger  sales  in  4Q14,  driven  by newly  launched  national  marques   (Axia  and  Iriz)  and continued  aggressive  campaigns by  foreign  OEMs.

Comment 

Perodua  (UMW  and  MBM)  achieved  weak  12.1k  sales  in Sep (-30.8% yoy;  -16.9% mom)  as consumers  held back  for the  new  Axia  and  phase -off  of  Viva.  Newly  launched  Axia has received bookings of  32k units (vs. targeted sales of 30k in  2014),  due  to  the  attractive  pricing  at  RM24.6k - RM42.5k and high fuel efficiency at 21.6km/L.

Similarly,  Proton  (DRB)  reported  weak  8.1k  sales  (-45.7% yoy;  -6.5%  mom).  The  new  model  Iriz   has  receive d  strong pre -booking  of  17k  units.  The  model  is  priced  at  RM42.3 -62.9k  with  high  safety  specifications  and  various  attractive features .  Iriz  is   currently  undergoing  further  developments for new diesel engine, hybrid  and electric motor (EV).

Competitions among the foreign  OEMs remained  intense in Sep.  Toyota (UMW)  sales dropped further  by  4.0% mom to 7.5k  units  and  Honda  (DRB)  sales  dropped  7.8%  mom  to 6.2k units, while Nissan (TCM) sales remained weak at 3.5k units. Other  OEMs reported c ombined s ales of 10.5k units, leaded  by Ford (Sime Darby)  and  Mitsubishi (DRB & MBM).

We  expect  foreign  OEMs  to  maintain  (or  even  intensifies) their sales campaigns (promotional prices, attractive interest rates, extended warranties and free services, etc ) into 4Q14, in order to achieve their respective sales target for 2014 and defend  their market share ahead  of GST implementations.

We believe Mark et Down- Trading remained intact, as higher cost  of  living  take  effects.  OEMs  focusing  on  A -B  segment cars  will  be  the  major  beneficiary.  (Refer  to  HLIB’s  Auto Outlook Report dated  15 September  2014).

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

We  maintained  Neutral  outlook  on  Automotive  sector,  with Top  Picks:  MBM (TP: RM4.00)  and  DRB (TP: RM3.00).

Source: Hong Leong Investment Bank Research - 20 Oct 2014