Highlights

• MAA’s June 2017 auto sales dipped to 50.3k units (-12.4% YoY; -0.6% MoM) due to shorter working month from Hari Raya holiday. Nevertheless, YTD TIV improved by +3.3% YoY to 284.5k units accounting for 47.3% of our estimates. We maintain our 2017 TIV assumption of 600.6k units (+3.5% YoY) on the expectation of seasonally stronger 2H17 sales from new model launches, normalizing consumer sentiments and end year campaigns.

Comment

• Perodua (UMW and MBM) recorded sales of 17.8k units (-11.1% YoY; +3.5% MoM) and maintained its leading position with 35.4% market share in June 2017. YTD, it registered 99.7k sales (+2.4% YoY), driven mainly by high demand for Axia, Bezza and Myvi. Perodua is on track to achieve its 2017 sales target of 202k units and is expected to release new Myvi by 4Q 2017.

• Proton (DRB) registered sales of 7.2k units (+3.8% YoY; +0.7% MoM), bringing 1H17 sales to 39.4k units (+10.3% YoY). Proton continues to fall short its 120k sales target for 2017 despite several new launches in 2016. The new joint venture between Geely and Proton is expected to contribute to Proton’s turnaround with the support of Geely’s platform, technology and skillset.

• Honda (DRB) registered sales of 8.8k units (-4.8% YoY; -3.8% MoM), driving YTD sales to 52.5k units (+32.5% YoY). Honda is likely to surpass its 100k target, as it has achieved 52.5% of the target in 1H17. Sales is expected to remain strong in 2H17, given recent new launched Jazz, City and CRV models.

• Toyota (UMW) recorded weak sales of 5.3k units (-21.7% YoY; -12.2% MoM). However, YTD sales improved by +23.8% YoY at 33.7k units, accounting for 49.1% of its 68.5k sales target in 2017. Toyota is expected to introduce Vios facelift and new variants for Innova, Fortuner and Hilux in 2H17.

• Nissan (TCM) reported weak sales of 2.7k units (-35.6% YoY; +3.3% MoM). YTD sales drop by 36% YoY to 13.5k units. The weak Nissan sales is unsurprising, given the lack of new model introduction amid stiff competition.

• Other marques reported combined sales of 8.4k units (-16.9% YoY; +0.2% MoM). The segment was led by Merc (DRB & C&C), BMW (Sime) 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 maintain NEUTRAL on the sector. Our top picks are MBM (BUY; TP: RM2.68) and DRB (BUY; TP: RM2.26).

Source: Hong Leong Investment Bank Research - 25 Jul 2017