Highlights

• Malaysian Automotive Association (MAA) reported strong TIV at 50.6k units (+13.3% YoY; +18.4% MoM) in May 2017. MAA attributed the improved TIV to pre Hari Raya festive season promotions and new model launches by major marques. YTD, TIV improved by +7.4% YoY to 234.2k units. We maintain our 2017 TIV assumption of 600.6k units (+3.5% YoY) as we expect slower growth in 2H17 due to high base effect.

Comment

• Perodua (UMW and MBM) maintained its leading position with 17.2k sales (+12.9% YoY; 19.7% MoM) and 34.0% market share in May 2017. YTD, it registered 81.9k sales (+5.9% YoY), driven mainly by high demand for Axia and Bezza model. 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) recorded improved sales to 7.2k units (+41.7% YoY; +27.8% MoM). YTD, Proton sales improved by +11.8% to 32.2k units due to new model launches in 2H16. The recent Head of Agreements signed with Geely (Proton’s Foreign Strategic Partner) has improved the prospect of Proton’s turnaround, given Geely’s support in terms of platform, technology and skillset.

• Honda (DRB) registered strong sales at 9.2k units (+61.7% YoY; +25.7% MoM) due to Raya festive and new launch of City facelift in May. YTD, Honda recorded strong sales of 43.7k units (+43.8% YoY), likely to outperform its targeted 100k sales, driven by new launches of high volume models (new BRV, City facelift and Jazz facelift) in 2017.

• Toyota (UMW) sales was stable at 6.1k sales (-1.1% YoY; +4.4% MoM). YTD, Toyota achieved sales of 28.4k units (+38.9% YoY), on track to achieve its target 68.5k sales (+7.45% YoY) in 2017, banking on launch of a facelift model and a few new variants in 2017.

• Nissan (TCM) sales remained disappointing at 2.7k units (-14.7% YoY; +22.7% MoM) in May, bring YTD sales at 10.8k units (-36.1% YoY). The weak Nissan sales is unsurprising, given lack of new models and stiff competitions from new models introduced by other OEMs.

• Other marques reported combined sales of 8.3k units, a growth of +11.3% MoM due to Raya sales, but dropped by -11.8% YoY on new models and stiff competitions from major OEMs. The segment was led by Merc (DRB & C&C), Isuzu (DRB) and Mazda (BAuto).

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: RM2.68) and DRB (BUY; TP: RM2.58)

Source: Hong Leong Investment Bank Research - 20 Jun 2017