Highlights

• TIV jumped +12.1% mom to 57.4k units in June on the back of aggressive campaigns for Raya festival. However, TIV dropped 1.9% yoy, indicating weakened underlying consumer demand. YTD TIV dropped 3.3% yoy to 322.2k units, which was 48.6% of HLIB’s expectation of 663k units for 2015. We expect sales to normalize by 2H15, given the on-going aggressive sales campaigns.

Comment

• Perodua (UMW and MBM) market share remained strong at 28.7% in June and 33.7% in 1H15 due to strong demand for Axia model. YTD, Perodua achieved 108.5k sales (+14.8% yoy), where Axia contributed 53.7k sales. Management expects the targeted 208k units for 2015 is within reach despite concern on weakened consumer sentiment. The new Sedan model is only expected to be introduced by 2018. In the meantime, more variants of existing models will be introduced.

• Proton (DRB) was affected by the aggressive competition. Its market share has slipped to 16.1% in June and 15.6% in 1H15. Proton has entered into collaboration agreement with Suzuki for joint development of Proton’s new compact car model. The new model is expected to be introduced by 2016.

• Honda (DRB) climbed onto the top spot within foreign segment, with market share of 13.5% in 1H15. YTD, Honda recorded 43.6k sales (+17.2% yoy), on track to achieve its 86k target in 2015, banking on highly demanded HRV as well as sustaining demand for other models.

• Toyota (UMW) slipped to second spot with 12.0% market share in 1H15 (dragged by weak sales in 1Q15). Nevertheless, Toyota sales has showed improvements in June after aggressive sales campaigns ahead of Raya festive.

• Nissan (TCM) retained its 3rd spot with 23.9k sales (+8.2% yoy) or 7.4% market share in 1H15. Nissan sales was supported by newly launched Almera facelift and new SUV X-Trail in 1Q15.

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; and
• Implementation 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 stance on the Automotive sector, with MBM (TP: RM4.28) as our Top Pick.

Source: Hong Leong Investment Bank Research - 29 Jul 2015