Highlights

• As expected, MAA’s Feb 2016 data showed further weakness from Jan 2016, with TIV sales at 37.9k (-24.8% yoy; -15.1% mom) on weaker consumer sentiments, long holidays (CNY) as well as increased car prices (for selective models). Nevertheless, we maintain our 2016 TIV assumption at 666.1k units (-0.1% yoy), on the expectation of stronger 2H16, on high demand for new model launches by Proton (DRB & MBM) and Perodua (UMW & MBM), as well as on-going promotions and freebies to boost sales of existing models by OEMs.

Comment

• Perodua (UMW and MBM) remained at the top with 37.0 % market share and 14.0k sales (-24.6% yoy; -9.8% mom). Demand for Axia remained strong, while that of MyVi and Alza were slowing, and hence RM3k rebates program were launched to boost sales of both model. The expected new Sedan model by 2H16 is expected to support Perodua targeted sales of 216k units for 2016.

• Proton (DRB & MBM) sales weakened to 5.9k units (-28.0% yoy; -23.2% mom) post price hikes in Feb. Upcoming launch of Perdana (RM100-150k) by Mar, and followed by Persona, Saga and MPV (JV with Suzuki) are catalyst for Proton to achieve its tall target of 150k sales for 2016.

• Honda (DRB) stayed at the top of foreign segment with 5.6k sales (-7.1% yoy; -2.2% mom) or 14.8% market share. Honda sets a conservative target of 90k sales for 2016, with new launches of Civic and Accord.

• Nissan (TCM) sales dropped to 2.8k units (-21.5% yoy; -21.5% mom). Nissan has announced price hikes of RM5k (+3-6%) for each model, which may prove detrimental to its sales target of 50k units for 2016.

• Toyota (UMW) sales remained weak at 2.9k units (-41.5% yoy; -5.4% mom) post price hikes effective in Jan 2016. New launches of Hilux, Innova, Fortuner and upgraded Vios are set to support Toyota’s target of 85k units for 2016.

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) Tight 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 - 21 Mar 2016