Highlights

• As expected, MAA’s March 2016 data showed a strong rebound of +28.8% mom after long holidays in Feb, but dropped significantly 27.5% yoy due to high base effect, as consumers bought ahead of GST implementation in April 2015 and took advantage of the attractive packages offered by OEMs/dealers to clear inventory. YTD, sales dropped 22.0% yoy, due to high base effect as well as weak consumer sentiment. Nevertheless, we maintain our 2016 TIV assumption at 666.1k units (-0.1% yoy), on the expectation of stronger 2H16, driven by strong 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) stayed at the top with 36.1% market share and 17.6k sales (-21.6% yoy; +25.8% mom). Perodua CEO is cautiously optimistic in achieving sales target of 216k units, given YTD sales of 47.2k units (21.9% of target). Strong demand for Axia and new launch of Sedan model will push Perodua towards its sales target.

• Proton (DRB & MBM) sales remained weak in March at 5.5k units (-47.4% yoy; -6.9% mom) post price hikes in Feb. New Perdana launch seems to have been delayed from original schedule Mar-Apr. Nevertheless, Proton continues to receive support from government, given its important role within the automotive industry.

• Within the foreign segment, Honda (DRB) led the pack with 7.4k sales (-22.6% yoy; +32.1% mom), Honda sales was supported by strong demand for HRV model.

• Followed by Nissan (TCM) with 4.4k sales (-14.0% yoy; +56.5% mom), on the back of pent up purchases prior to price hikes effective April.

• Toyota (UMW) dropped to 3rd spot with 4.3k units (-39.9% yoy; +48.1% mom). New model launches of Hilux, Fortuner, Innova and upgraded Vios are likely to boost sales.

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; 3) Depreciation of RM; and 4) Weakened consumer sentiment.

Valuation

• We maintain underweight on the Automotive sector.

Source: Hong Leong Investment Bank Research - 20 Apr 2016