Highlights

• MAA continued to report weak TIV for Nov 2016 of only 49.1k units (-12.5% yoy; +2.5% mom), dragged YTD TIV to 515.3k units (-13.7% yoy). The weak numbers reflect the ongoing subdued consumer sentiment and tightening bank lending policy. Following the weak YTD numbers, we lower our 2016 TIV assumption to 575k (-13.8% yoy) from 595k units (-10.8% yoy). With the ongoing aggressive sales campaigns launched by OEMs and expected price hikes in 2017 (announced by a few OEMs), we expect sales to improve in Dec, but still a yoy drop due to high base.

Comment

• Perodua (UMW and MBM) reported weak sales of 15.4k units (-8.8% yoy; -4.3% mom) on aggressive sales campaigns and new models by Proton and foreign OEMs. Perodua’s existing 2016 sales target of 216k is relatively tall to achieve, given YTD sales of only 182.5k units. Nevertheless, sales is expected to pick up in Dec prior to price hikes in 2017.

• Proton (DRB & MBM) sales was weak at 7.3k units (+2.3% yoy; -4.0% mom) despite recent new model launches as management blamed on tightened bank loan policy. We believe the situation poises the urgency of restructuring with the emergence of strategic foreign OEM partnership (supported by government).

• Honda (DRB) retained its sweet spot (only second to Perodua) with 8.9k units (-3.6% yoy; +8.5% mom) driven by recent launches of aggressive sales campaigns. With YTD sales of 80.4k units, Honda is just slightly behind 2016 target of 90k units.

• Toyota (UMW) sales rebounded mom to 6.4k units (-33.0% yoy; +16.2% mom), thanks to newly upgraded Vios (new engine and improved specifications) and aggressive sales campaigns. YTD, Toyota only achieved 56.5k units, far behind its 2016 target of 75k units.

• Nissan (TCM) retained sales volume at 3.1k units (-17.6% yoy; +24.3% mom) from ongoing aggressive sales campaigns. Given the lack of new models in 2017, Nissan sales is expected to deteriorate further.

• Other marques recorded combined sales of 8.0k units (-16.2% yoy; +0.3% mom), led by Isuzu (DRB), Mercedes (DRB & C&C) 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 ( ↔ )

• Entering 2017, the sector is expected to continue being undermined by the ongoing weak consumer sentiments as well as the weakening of RM, which has impact on its cost structure 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 stance on the Automotive sector, with DRB (TP: RM1.35) as top pick.

Source: Hong Leong Investment Bank Research - 21 Dec 2016