Highlights

• MAA reported disappointing TIV number for May TIV of only 44.7k units (-12.8% yoy; +5.9% mom), affected by the ongoing cautious consumer sentiments (especially on big item purchase) as well as consumers holding back purchases in anticipation of new model launches. YTD, sales dropped by 17.6% yoy, due to high base effect as well as weak consumer sentiment. We maintain our 2016 TIV assumption of 613.4k units (-8.0% yoy), as we expect stronger sales in 2H16 with new model launches.

Comment

• Perodua (UMW and MBM) controlled the largest market share at 34.1% in May, with sales of 15.2k units (-11.8% yoy; +2.3% mom), due to strong demand for Axia, which was partially offset by the weaker demand for MyVi. The launch of new sedan model in 2H16 is expected to improve Perodua sales and achieve its target of 200k sales for 2016.

• Proton (DRB & MBM) sales remained weak in May with 5.1k units (-38.9% yoy; +13.1% mom) due to weak consumer sentiments, lack of new models as well as consumers holding back of purchases pending new model launches. Proton has recently launched new Perdana to improve its branding while upcoming Persona, Saga and Ertiqa are expected to improve its sales in 2H16.

• Within the foreign segment, Toyota (UMW) reclaimed its top spot with 6.1k sales (-18.6% yoy; +50.2% mom) attributed to sales of newly launched Hilux model. The reduced target of 80k units (from 85k) is still relatively tall for Toyota to achieve despite upcoming new launches of new Innova and upgraded Vios.

• Honda (DRB) sales remained stable at 5.7k units (-9.0% yoy; -5.1% mom), supported by resilient demand for HRV model. The newly launched Civic has received 1,400 pre orders. With YTD sales of 30.4k units, Honda is unlikely to achieve its’ target of 90k units for 2016.

• Followed by Nissan (TCM) with weak 3.2k sales (-5.3% yoy; -30.6% mom), post price hikes effective April. With no new model launch in 2016, Nissan is also likely to miss its target of 50k units for 2016.

• Other marques recorded combined sales of 9.4k units (+9.6% yoy; -3.0% mom), leaded by Mazda (BAuto), Mercedes (DRB & C&C) and Isuzu (DRB). A

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) RM depreciation; and 4) Weakened consumer sentiment.

Valuation

• We maintain underweight on the Automotive sector

Source: Hong Leong Investment Bank Research - 21 Jun 2016