Highlights

• MAA reported a weak TIV for Sep 2016 of only 48.2k units (-5.7% yoy; -7.9% mom) while YTD TIV dropped by 13.8% yoy to 418.4k units, reflecting subdued consumer sentiment and holding back of purchases in anticipation of more new model launches by major OEMs towards 2H16. Following the weak 9M16 numbers, we lower our 2016 TIV assumption to 595k (-10.8% yoy) from 613.4k units (-8.0% yoy). We remain upbeat on stronger 4Q16 TIV, on contribution from newly launched models and aggressive sales campaigns.

Comment

• Perodua (UMW and MBM) reported 17.1k sales (+18.4% yoy; -19.3% mom) on strong demand for Bezza which has delivered 20k units to date (partially offset by weaker sales of other models). Perodua still maintains its sales target of 216k for 2016, banking on strong demand for Bezza and newly launch sales campaigns for MyVi and Alza.

• Proton (DRB & MBM) sales rebounded mom to 6.1k units (-30.5% yoy; +36.7% mom) on new contribution of Persona. Sales is expected to continue improve in coming months with strong demand for new Persona and Saga. Proton is also expected to launch another new MPV model – Ertiqa (Suzuki) in Oct.

• Honda (DRB) retained its second spot (behind Perodua) with 7.5k sales (-0.3% yoy; -9.5% mom) driven by strong demand for HRV and City. Honda is on track to achieve its sales target of 90k for 2016, with recently launch aggressive sales campaigns with discounts up to RM7k.

• Toyota (UMW) sales remained weak at 5.7k units (-28.0% yoy; -13.5% mom), dragged by on-going weak consumer sentiment and stiff competition. Newly launched Vios (new engine and improved specifications) is expected to boost sales volume in 4Q16.

• Nissan (TCM) retained sales volume at 3.1k units (-14.5% yoy; -2.1% mom) from ongoing aggressive sales campaigns. Given lack of new models for 2016-17, Nissan will continue to rely on aggressive marketing to boost sales volume.

• Other marques recorded combined sales of 8.7k units (-1.8% yoy; +1.1% mom), led by Mercedes (DRB & C&C), Mazda (BAuto) and Isuzu (DRB).

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: RM3.08) as top pick.

Source: Hong Leong Investment Bank Research - 21 Oct 2016