Highlights

• MAA’s April 2017 TIV fell 20.4% MoM to 42.7k units, affected by ongoing cautious consumer sentiments especially on big ticket item purchase as well as stringent hire purchase loan approvals. Nevertheless, TIV improved +1.3% YoY in April and +5.8% YoY to 183.6k units for YTD, mainly on low base effect and new model launches in 2017. We maintain our 2017 TIV assumption at 600.6k units (+3.5% YoY) supported by new model launches by key marques and normalizing consumer sentiment.

Comment

• Perodua (UMW and MBM) reported weak sales with 14.4k units (-3.5 YoY; -26.1% MoM) with 33.6% market share in April. YTD, Perodua registered 64.6k sales (+4.1% YoY) mainly attributed to strong sales of facelifted Axia and Bezza. Perodua is on track to achieve 202k sales target in 2017 from Axia facelift, recent introduction of updated Bezza and upcoming new MyVi by mid-2017.

• Proton (DRB) reported weak sales in April at 5.6k units (+25.4% YoY; -7.5% MoM). YTD, Proton sales was 25.0k units (+5.4% YoY) behind its 120k sales target for 2017. The weak sales reflect DRB’s pressure to gain Foreign Strategic Partner, which is expected to be completed by the 1H17, for turnaround strategy plan.

• Honda (DRB) registered sales at 7.3k units (+22.1% YoY; -33.8% MoM). YTD, Honda recorded strong sales of 34.6k units (+39.7% YoY). Honda is in line to achieve its 100k sales unit for 2017, boosted by launches of volume driving models i.e. new BRV, City facelift and Jazz facelift as well as new CRV.

• Toyota (UMW) reported 5.8k sales (+42.3% YoY; -5.6% MoM). YTD, Toyota achieved sales of 22.3k units (+56.0% YoY) in line with their target to achieve 68.5k sales in 2017, leveraging on facelift Vios and new variant for Innova, Fortuner and Hilux in 2017.

• Nissan (TCM) sales remained weak at 2.2k units (-28.4% YoY; -17.7% MoM). YTD sales was 8.1k units (-40.9% YoY). Nissan sales is expected to remain weak in 2017 due to lack of new model launches and intense competition from its peers

• Other marques reported combined sales of 7.5k units (-23.2% YoY; -10.9% MoM). The segment was led by Mazda (BAuto) 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

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 maintain NEUTRAL on the sector. Our top picks are MBM (BUY; TP: RM2.75) and DRB (BUY; TP: RM2.22).

Source: Hong Leong Investment Bank Research - 23 May 2017