Highlights

• MAA reported stronger TIV in Nov at 55.3k units (+5.8% yoy; +2.1% mom), boosted by Perodua Axia as well as aggressive year -end promotions among the OEMs (especially foreign marques). YTD, TIV was 601.8k units (+1.1% yoy) vs. HLIB’s expectation of 679k units for 2014. Nevertheless, we remain upbeat on Dec TIV on the back of continued aggressive campaigns by OEMs to clear inventory by year end.

Comment

• Perodua (UMW and MBM) sales jumped to 18.5k units (+24.1% yoy; +4.8% mom) with market share of 33.5% in Nov due to the successful launch of Axia. Perodua announced production ramp- up for Axia, as the model has received stronger -than- expected bookings at 62k units (delivered 26k units by mid-Dec). YTD, Perodua sales was 176.5k units, likely to outpace its FY14 target of 193k units .

• Conversely, Proton (DRB) sales remained weak at 8.2k units (-11.3% yoy; +0.9% mom), indicating weak demand for its newly launched Iriz , while existing models facing dwindling demand due to aggressive campaigns by foreign OEMs (relatively lower pricing advantages).

• Toyota (UMW) overtook Proton’s position for the first time with 8.4k sales (-3.7% yoy; +6.0% mom), mainly due to aggressive year-end sales promotions. YTD, Toyota achieved 90.9k sales (+12.3% yoy), remained intact for its targeted FY14 100k sales (combined with Lexus).

• Honda (DRB ) remained strong in Nov with 6.3k sales (+37.4% yoy; +1.5% mom) and YTD sales of 69.2k units (+53.7% yoy), on track for its FY14 target of 76k units.

• Nissan (TCM) also reported sustained mom sales of 4.3k units (-12.7% yoy; + 2.7% mom), on the back of aggressive campaigns for its existing Almera model. YTD sales was 40.9k units (-15.8% yoy), behind its FY14 target of 50k units.

• Other OEMs reported combined weaker sales in Nov at 9.7k units (-3.0% yoy; -4.8% mom) due to aggressive campaigns by main OEMs. YTD combined sales of 117.1k units is led by Mitsubishi (DRB & MBM), Ford (Sime Darby), Mazda (BAuto) and Isuzu (DRB).

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

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 the Automotive sector, with MBM (TP: RM4.00) as our Top Pick.

Source: Hong Leong Investment Bank Research - 22 Dec 2014