Highlights

• As expected, MAA reported a strong +23.2% mom rebound in August, with TIV at 52.3k units on longer working month and strong demand for newly launch Perodua Bezza. Nevertheless, TIV still dropped by 2.2% yoy, reflecting weak consumer sentiments. YTD, TIV dropped by 14.8% yoy to 370.3k units, on subdued consumer sentiment 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 and Proton Persona as well as anticipated strong demand for upcoming Proton new launches - Saga and Ertiqa.

Comment

• Perodua (UMW and MBM) reported strong 21.3k sales (+28.1% yoy; +40.5% mom) on strong demand for Bezza, which has received 25k orders (10k delivered). Perodua is on track to achieve its target of 216k sales for 2016, given the strong demand for Bezza (launched 21 Jul).

• Proton (DRB & MBM) sales remained weak at 4.4k units (-50.9% yoy; +14.7% mom). On a brighter note, its newly launch Persona (23 Aug) has received strong 8k orders (2k delivered) by 19 Sep, indicating stronger numbers in next month. Upcoming Saga (Sep) and Ertiqa (Oct) launches are expected to further support sales volume growth in 4Q16.

• Honda (DRB) retained its second spot (behind Perodua) with 8.3k sales (+20.9% yoy; +5.8% mom), driven by strong demand for HRV. Newly launched Accord and new variants of HRV, City and Jazz are expected to support sales in 4Q16 and achieve its sales target of 90k for 2016.

• Toyota (UMW) sales was relatively weak at 6.6k units (-19.0% yoy; +30.5% mom), given ongoing weak consumer sentiment and stiff competition. Upcoming launches of new Innova, facelift Camry and upgraded Vios in 4Q16 will likely promote higher sales volume.

• Nissan (TCM) maintained sales volume at 3.2k (-14.9% yoy; +2.2% mom) from ongoing aggressive sales campaigns. Nissan is not expected to launch new models until 2018, indicating its continued strategy on aggressive marketing.

• Other marques recorded combined sales of 8.6k units (-5.9% yoy; +14.4% mom), led by Isuzu (DRB), Mazda (BAuto) and Mercedes (DRB & C&C). 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, with MBM (TP: RM2.75) as top pick.

Source: Hong Leong Investment Bank Research - 22 Sep 2016