Highlights

• MAA reported a weak TIV of 42.5k units in July (-27.6% yoy; -26.0% mom) due to long holidays on Raya festive month. YTD, sales dropped by 16.5% yoy on continued weak consumer sentiment since early 2016 and holding back of purchases in anticipation of new model launches by Perodua and Proton in 2H16. We maintain our 2016 TIV assumption of 613.4k units (-8.0% yoy) on the back of strong orders for newly launched Perodua Bezza sedan model as well as the anticipated strong demand for upcoming Proton launches - Persona, Saga and Ertiqa.

Comment

• Perodua (UMW and MBM) sales dropped to 15.1k units (-15.8% yoy; -24.6% mom) in line with market trend. Despite YTD sales of only 112.5k units, Perodua guided that it is on track to achieve its target of 216k sales for 2016, given the strong demand for new Bezza (launched 21 July). Bezza has received 19k orders, with 6k being delivered by 12 Aug.

• Proton (DRB & MBM) recorded weakest ever month with only 3.9k sales in July (-64.4% yoy; -44.5% mom) as consumers holding back purchases ahead of new model launches as well as cannibalization from Perodua Bezza. Upcoming Persona (Aug), Saga (Sep) and Ertiqa (Oct) launches are expected to improve its sales in 4Q16.

• Within the foreign segment, Honda (DRB) retained its top position with 7.8k sales (-7.3% yoy; -15.4% mom), driven by strong demand for City, Jazz and HRV. YTD, Honda achieved 47.5k sales (-8.8% yoy) with market share increased to 14.9%.

• Toyota (UMW) sales was considerably weak at 5.0k units (-31.2% yoy; -26.1% mom), given ongoing weak consumer sentiment and stiff competition. Upcoming launches of new Innova and upgraded Vios in 2H16 will likely promote higher sales volume. YTD, Toyota recorded 32.4k sales (-29.8% yoy) with lowered market share of 10.2%.

• Nissan (TCM) maintained its third position with 3.1k sales (-25.6% yoy; -27.7% mom) from ongoing aggressive sales campaigns. YTD, Nissan achieved 24.7k sales (-12.4% yoy) with improved market share of 7.2%.

• Other marques recorded combined sales of 7.5k units (-24.0% yoy; -24.8% mom), led by Mercedes (DRB & C&C), Isuzu (DRB) and BMW (Sime Darby).

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 MBM (TP: RM2.75) as top pick.

Source: Hong Leong Investment Bank Research - 22 Aug 2016