Highlights

• MAA reported auto sales of 48.6k units in July, a growth of +14.3% YoY, but a drop of 3.4% MoM, due to timing of Raya festive. YTD-July sales improved by +4.7% YoY to 333.0k units. We expect higher August sales volume vs July on the back of the continuation of aggressive promotions by carmakers for Merdeka month. We maintain our 2017 TIV assumption of 600.6k units (+3.5% YoY) on the expectation of seasonally stronger 2H17 sales, normalizing consumer sentiments and end year campaigns.

Comment

• Perodua (UMW and MBM) sales rose to 18.9k units (+25.1% YoY; +6.2% MoM). YTD sales stood at 118.6k units (+5.4% YoY). Perodua is well on track to meet its sales target of 202k units, banking on the strong sales for Axia and Bezza, as well as upcoming new Myvi by 4Q17.

• Proton (DRB) sales improved by +25.1% YoY to 6k units due to low base effect, but dropped -17.6% MoM due to the increasingly competitive in the automotive landscape. YTD sales was at 45.3k unit (+14.5% YoY). Proton continues to fall short its 120k sales target for 2017. With Proton-Geely’s joint venture, we believe there will be positive impact on Proton’s turnaround by leveraging on Geely’s platform, technology and skillset.

• Honda (DRB) sales was 8.6k units (+9.6% YoY; -2.6% MoM). YTD sales volume improved by +28.7% YoY to 61.1k units on track to achieve its targeted 100k sales, thanks to high demand for its successful launches of BRV, City and Jazz.

• Toyota (UMW) sales volume improved to 5.5k units (+4.0% MoM; +10.2% YoY). YTD sales volume was also up +27.1% YoY to 39.3k units. We expect Toyota to continue face stiff competitions especially from Honda.

• Nissan (TCM) continued to report disappointing sales at 2.5k units (-17.9% YoY; -8.0% MoM). YTD sales dropped by 33.7% YoY to 16.1k units. Nissan sales will remain lackluster for the rest of the year due to lack of new model.

• Other marques reported combined sales of 7.0k units (-7.0% YoY; -15.7% MoM). The segment was led by BMW (Sime), Isuzu (DRB) and Merc (DRB & C&C).

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 ringgit 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), PECCA (BUY; TP: RM1.88) and DRB (BUY; TP: RM2.26).

Source: Hong Leong Investment Bank Research - 21 Aug 2017