Highlights

MAA reported mom rebound in Oct  TIV at 54.3k units (-1.6% yoy;  +13.4%  mom)  from  maiden  contribution  of  Perodua Axia,  after  a  weak  Sep  month  (affected  by  weak  sales  of national  marques  ahead  of  newly  launched  Perodua  Axia and Proton Iriz).  YTD,  TIV  was  546.5k units (+0.6% yoy)  vs. HLIB’s expectation of +3.5% yoy .  We expect  stronger  sales in  remaining  2  months ,  driven  by  the  deliveries  of  Perodua Axia  and  Proton  Iriz ,  as  well  as continued  aggressive  end year  campaigns by foreign  OEMs.

Comment

Perodua  (UMW  and  MBM)  sales  jumped  to  17.7k  units  in Oct (+13.8% yoy; +46.0% mom)  from the deliveries of newly launched Axia (mid Sep).  Axia has received strong  bookings of  42k  units  (vs.  targeted  sales  of  30k  in  2014).  YTD, Perodua  sales  was  158.0k  units,  on-track  to  achieve  FY14 sales target of 193k units.

Conversely,  Proton  (DRB)  sales  remained  weak  at  8.1k units  (-37.2%  yoy;  +1.0%  mom),  indicating  weak contribution  from  newly  launched  Iriz  (end  Sep). Management  attributed  the  weak  sales  (deliveries  to customers),  due  to  mass  production  hiccups  during  Oct month.

Sales of  Toyota (UMW)  and Nissan (TCM) improved +6.2% and  +16.5%  mom  respectively,  mainly  due  to  aggressive end -year  sales  campaigns.  YTD,  both  Toyota  and  Nissan are  currently  behind  their  FY14  sales  target,  while  Honda (DRB)  sales  stay  relatively  flat  at  +0.3%  mom,  on  track  to achieve  its targeted FY14 76k units (currently  62.9k units).

Other  OEMs reported combined sales of  107.4k units  YTD, leaded  by  Ford  (Sime  Darby),  Mitsubishi  (DRB  &  MBM), Mercedes (C&C)  and Mazda (BAuto).

We  noted   OEMs  (especially  foreign  marques)  ha ve launched  aggressive  end -year  sales  campaigns   (discounts, extended  warranties,  free  maintenance,  low  hire  purchas e rates etc)  since Oct. Hence, we  expect sales momentum to continue for the remaining months, at the expenses of lower margins.

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).

Source: Hong Leong Investment Bank Research - 21 Nov 2014