Highlights

• MAA’s Jan 2016 data showed weak start to the year with TIV sales of 44.6k (-11.9% yoy; -35.7% mom) after the end of 2015 Year-End promotions as well as purchases prior to price hikes by several OEMs effective Jan 2016. The weak trend is expected continue into Feb due to long holidays. Nevertheless, we maintain our 2016 TIV assumption at 665k units (-0.25% yoy), on the expectation of stronger 2H16, on high demand for 6 new model launches by national marques – Proton (DRB & MBM) and Perodua (UMW & MBM).

Comment

• Perodua (UMW and MBM) remained at the top with a higher market share of 34.8% and recorded 15.5k sales (-3.3% yoy; -27.9% mom) after sales campaigns ended 2015. It is targeting 216k sales (+1.2% yoy) in 2016, with 2 new model launches – Sedan and Alza.

• Proton (DRB & MBM) sales sustained at 7.7k units (-13.0% yoy; -4.9% mom) with 17.4% market share. It has recently launched several initiatives to improve its customer service and revitalize its brand name. It has set a tall sales target at 150k (+46.8% yoy) for 2016, with 4 new model launches – Perdana, Saga, Persona and a new MPV (JV with Suzuki).

• In line with market trend, Honda (DRB) remained on top of the foreign segment with 5.7k sales (-11.9% yoy; -46.6% mom) with 12.9% market share. In 2016, Honda is expected to introduce new Civic model, facelifted Honda model and potentially BR-V model to maintain its top position.

• With sustained sales of 3.6k units (-24.6% yoy; -29.6% mom), Nissan (TCM) climbed to second spot with 8.1% market share, overtook Toyota. Despite severely affected by RM depreciation, Nissan has not increased its car prices, which may maintain consumer interest on Nissan models.

• Toyota (UMW) recorded weak sales of 3.1k units (-24.2% yoy; -76.5% mom) as consumer made purchases ahead in previous month Dec 2015, taking advantage of the year end promotions and avoiding Toyota price hikes effective in 2016. 2016 new launch include Hilux, Innova and Fortuner.

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

• Underweight

Positives

• : 1) Potential export to regional market, i.e. Malaysia as a hub; and 2) Implementation of Energy Efficient Policy.

Negatives

• : 1) Tighten bank lending rules; 2) Competitive pressure on margins; and 3) Depreciation of RM.

Valuation

• We maintain underweight on the Automotive sector.

Source: Hong Leong Investment Bank Research - 24 Feb 2016