Highlights

• December TIV reported a strong +32.0% mom rebound to 64.8k units, mainly driven by consumers taking advantage on the attractive year-end promotions. Nevertheless, it was still a drop of 6.6% yoy. For 2016, TIV was within market expectation, declining 13.0% yoy to 580.1k units due to subdued consumer sentiments. We expect TIV to recover marginally by 3.5% yoy to 600.6k units in 2017, driven mainly by recovery in consumer sentiment and model launches by national marques in 2H16 and 2017.

Comment

• Perodua (UMW and MBM) remained at the top (207.1k units) with a higher market share of 35.7% (-2.9% yoy) in 2016. It is targeting 202k (-2.5% yoy) sales in 2017, in view of a challenging year with competitive pressure and subdued consumer sentiment.

• Conversely, Proton (DRB & MBM) market share fell further to 12.5% with 72.3k units (-29.2% yoy), due to deteriorated market conditions, lack of new models in earlier part of 2016 and stiff competitions. The recent weak monthly sales of only 7-8k units (despite several new launches) signifies DRB’s yearning to ensure the success of Proton restructuring plan with potential emergence of strategic foreign OEM partner (supported by government).

• Honda (DRB) outpaced Toyota and Proton, with 91.8k sales (-3.2% yoy) and 15.8% market share. Recent launch of new model BRV and expected new launches of facelift for City and Jazz are expected to sustain sales in 2017.

• Toyota (UMW) sales plunged to 63.9k units (-31.9% yoy) with market share of only 11.0%, due to deteriorated market conditions and stiff competitions. Nevertheless, Toyota is expected to achieve higher sales in 2017 due to low base in 2016 and full year contribution from upgraded Vios (launched in Oct 2016).

• Similarly, Nissan (TCM) sales also dropped yoy to 40.6k units (-14.0% yoy), but sustained market share at 7.0%, driven by Nissan’s all year long aggressive sales campaigns. Given no new models in 2017, Nissan may continue to face tough competition in 2017.

• Combined sales of other models was 104.4k units, a drop of 9.5% yoy. The market was led by Isuzu (DRB), Mazda (Bauto) and Mercedes (DRB & CnC).

Risks

• Loosening of banks’ HP rules.

• Significant improvement in consumer sentiment.

• Sharp appreciation of RM.

• Lower fuel prices and interest rate.

Rating

Underweight ( ↔ )

• Entering 2017, the sector is expected to continue being undermined by the ongoing subdued consumer sentiments as well as weak RM, which has impact on cost structure and margins. The continued tight bank lending requirement 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 DRB (BUY; TP: RM1.35) as top pick.

Source: Hong Leong Investment Bank Research - 20 Jan 2017