Highlights

• March 2017 TIV showed strong sales at 53.7k units (+10.1% YoY; +26.5% MoM), driven by new model launches i.e. Perodua Axia facelift, Honda City facelift and new BRV as well as several new Toyota models since 4Q16. YTD, TIV was at 140.8k units (+7.3% YoY), on the back of strong demand for the newly launched models and active promotions by the OEMs. We maintain 2017 TIV forecast at 600.6k units (+3.5% YoY), as we expect slower growth towards 2H16 due to higher base effect.

Comment

• Perodua (UMW and MBM) maintained its leading position with 19.5k units (+10.4% YoY; +17.2% MoM) and 36.2% market share in Mar, attributed to strong demand for Axia facelift (launched in Jan). YTD, Perodua registered 50.3k sales (+6.5% YoY), on track to achieve 202k sales target in 2017, supported by Axia facelift and recent introduced updated Bezza and upcoming new MyVi by mid-2017.

• Proton (DRB) reported weak sales of 6.1k units (+9.7% YoY; -0.5% MoM), mainly due to stiff competition. YTD sales was 19.4k units (+0.8% YoY), behind its 120k sales target. We believe it is imperative for Proton to secure a Foreign Strategic Partner by mid-2017, in order for it to leverage onto for a strategic turnaround plan.

• Honda (DRB) maintained its number one spot for non national segment with 11.0k sales (+48.2% YoY; +42.9% MoM) on strong demand for the new BRV and City facelift. YTD, Honda recorded strong 27.3k sales unit (+45.3% YoY), possibly beating its 100k sales target in 2017, to be further boosted by upcoming new CRV and Jazz facelift.

• Toyota (UMW) reported 6.2k sales (+42.7% YoY; +36.0% MoM). YTD, Toyota achieved 16.5k sales (+61.5% YoY), in line with its 68.5k sales target (+7.4% YoY) in 2017.

• Nissan (TCM) sales remained weak at 2.6k units (-39.6% YoY; +45.2% MoM). YTD sales was 6.0k units (-44.4% YoY). Sales is expected to remain weak as no new model will be introduced in 2017.

• Other marques reported combined sales of 8.4k units (-11.9% YoY; +47.0% MoM). The segment was led by Mercedes (DRB & C&C) 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 Neutral ( )

• 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. Nevertheless, we expect national OEMs to sustain sales volume in 2017.

Valuation

• We upgrade to Neutral (from Underweight) on the sector, given several recommendation upgrades in the companies under our coverage. However, we opine that 1Q17 earnings may remain disappointing before improving into the subsequent quarters. Our top picks are MBM (BUY; TP: RM2.75) and DRB (BUY; TP: RM2.22)

Source: Hong Leong Investment Bank Research - 20 Apr 2017