Highlights

• As expected, February TIV dropped by 5.0% MoM to 42.5k sales mainly due to shorter working days in February as well as long festive holidays. On the brighter side, the monthly sales represented a growth of +12.1% YoY. YTD sales (87.1k units) grew +5.6% YoY, attributed to new launches by end 2016 and early 2017. We maintain our 2017 TIV forecast at 600.6k units (+3.5% YoY), supported by new model launches, gradual recovery of consumer sentiment and stabilization of MYR against US$.

Comment

• Outperformed the overall market, Perodua (UMW and MBM) reported sales of 16.6k units (+18.5% YoY; 16.9% MoM) in Feb, commanding largest market share of 39.1%, attributed to strong demand for new Axia facelift since Jan 2017. YTD, Perodua achieved 30.8k sales (+4.2% YoY) and is on track for 202k sales (-2.5% YoY) target for 2017, bolstered by upcoming launch of new MyVi model by mid-2017.

• Proton (DRB) sales remained weak at 6.1k units (+2.6% YoY; -15.4% MoM) on stiff competition and sub-par brand name. YTD sales only achieved 13.3k units (-2.8% YoY), behind its 120k sales target. Given the dismal sales, it is pressing for Proton to secure a foreign strategic partner (FSP) for turnaround solutions. Proton is expected to finalize its FSP (rumoured to be PSA or Geely) by mid-2017.

• Honda (DRB) maintained its top spot within foreign segment, with market share of 18.1% and 7.7k sales (+37.0% YoY; -25.0% MoM) in Feb. YTD, Honda recorded strong 16.3k sales (+43.4% YoY), attributed to newly launched BRV in Jan (received 9k order by mid-Mar). Newly launched City facelift in Mar has also received commendable orders of 2.5k units by mid-Mar.

• Toyota (UMW) reported 4.5k sales (+55.3% YoY; -20.9% MoM) in Feb and 10.3k sales YTD (+75.4%), a strong YoY growth due to low base effect. Toyota is targeting 68.5k sales (+7.4% YoY) in 2017, banking on Vios facelift and new Innova launched in 4Q16 as well as 2 models in 2017.

• Nissan (TCM) sales remained weak at 1.8k units (-34.8% YoY; +16.3% MoM) in Feb and 3.4k units YTD (-47.6% YoY). Sales will remain weak due to lack of new model.

• Combined sales of other OEMs were 5.7k units (-13.4% YoY; -21.6% MoM). The segment was led by Merc (DRB & C&C), Isuzu (DRB) and BMW (Sime Darby Motor).

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 ( ↔ )

• The sector is expected to continue being undermined by the ongoing subdued consumer sentiments and weak RM in 2017, 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 sector. Our top picks are MBM (BUY; TP: RM2.75 ) and DRB (BUY; TP: RM2.00).

Source: Hong Leong Investment Bank Research - 22 Mar 2017