Highlights

• MAA reported a disappointing TIV for Oct 2016 of only 47.9k units (-14.2% yoy; -0.4% mom) while YTD TIV dropped by 13.9% yoy to 466.2k units, reflecting subdued consumer sentiment on weakened RM and government’s subsidy rationalization exercises. TIV is expected to improve in the last two months, as OEMs had launched aggressive sales campaigns to boost year-end sales volume in order to achieve sales target and clear existing inventories.

Comment

• Perodua (UMW and MBM) reported weaker 16.1k sales (-6.7% yoy; -5.8% mom), mainly affected by new launches by Proton. Recent aggressive sales campaigns for MyVi and Alza are expected to push Perodua year-end sales and achieve target of 216k sales. YTD, Perodua registered 167.0k sales (-4.5% yoy).

• Proton (DRB & MBM) sales improved further mom to 7.6k units (-4.8% yoy; +26.0% mom) on new contribution of Persona and Saga. However, the new models sales seemed to be lower than monthly expectation of 8-10k units, while new model MPV Ertiqa has been delayed, suggesting urgency of its restructuring plan. Proton has recently shortlisted 3 international OEMs as strategic partnership as part of its restructuring effort.

• Honda (DRB) sales sustained at 8.2k sales (-3.5% yoy; +9.4% mom), after launch of aggressive sales campaigns with discounts up to RM7k. Honda has previewed new models BRV and Jazz hybrid recently, indicating potential new models into Malaysia market in 2017.

• Toyota (UMW) sales remained weak at 5.5k units (-38.9% yoy; -3.2% mom), dragged by on-going weak consumer sentiment and stiff competition. Toyota has recently launched aggressive sales campaigns with discounts up to RM10k, in order to boost year-end sales volume.

• Nissan (TCM) sales plunged to 2.5k units (-14.8% yoy; -19.1% mom), lowest monthly sales since 2012. 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 7.8k units (-14.6% yoy; -8.3% 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 ( ↔ )

• Entering 2017, the sector is expected to continue being undermined by the on-going weak consumer sentiments as well as weakening of RM, which has impact on cost structures and margins. The tightened bank lending requirements has also affected sales volume. Nevertheless, we expect national OEMs to sustain sales volume in 2017.

Valuation

• We maintain underweight on the Automotive sector, with MBM (TP: RM3.08) as top pick.

Source: Hong Leong Investment Bank Research - 21 Nov 2016