Highlights

• MAA reported a rebound of TIV in June to 57.4k units (-0.1% yoy; +28.4% mom) due to seasonally strong demand during pre-raya festive month. Nevertheless, the slower decline on yoy basis reflects improvement in consumer sentiments. YTD, sales dropped by 14.5% yoy on weak consumer sentiment since early 2016. 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) sales jumped to 20.0k units (+21.7% yoy; +31.5% mom) on strong demand for Axia. For the new launch sedan model ‘Bezza’, Perodua expects monthly sales of 10k units/month for initial 3 months and subsequently drop to 7.7k units/months. Despite the potential cannibalization of its existing model, Bezza will lead Perodua to achieve its target of 200k sales for 2016.

• Proton (DRB & MBM) sales remained weak in June at 7.0k units (-24.9% yoy; +37.5% mom) due to lack of new volume driving models as well as consumer holding back of purchases pending new model launches. Newly launched Perdana was only targeted for monthly sales of 500 units while upcoming Persona, Saga and Ertiqa are expected to improve its sales in 2H16.

• Within the foreign segment, Honda (DRB) reclaimed back its top position with 9.3k sales (+6.8% yoy; +63.5% mom), driven by new model Civic as well as strong demand for City, Jazz and HRV.

• Toyota (UMW) sales remained weak at 6.8k units (-24.2% yoy; +10.8% mom) despite new models Hilux and Fortuner. Upcoming launches of new Innova and upgraded Vios in 2H16 will likely promote higher sales volume. Toyota is setting up a new manufacturing plant in Klang for small cars (energy efficient vehicle) for expansion and improving its cost structures.

• Nissan (TCM) maintained its third position with 4.3k sales (+13.2% yoy; +36.4% mom) from ongoing aggressive sales campaigns. Nissan is only expected to launch new models in 2017.

• Other marques recorded combined sales of 10.0k units (-5.9% yoy; +6.2% mom), led by Isuzu (DRB), Mazda (BAuto) and Mercedes (DRB & C&C). 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, with top pick on MBM (TP: RM2.75).

Source: Hong Leong Investment Bank Research - 21 Jul 2016