Highlights

• August auto sales rose by +6.5% MoM to 51.7k units, in line with market expectations, but was marginally lower by 1.0% YoY. For 8M17, total industry volume (TIV) sales increased by +3.9% YoY to 384.7k units. We maintain our 2017 TIV assumption of 600.6k units (+3.5% YoY) as we expect moderate sales growth for the remaining months of 2017, supported by new launches, normalization of consumer sentiments and year-end sales campaigns.

Comment

• Perodua (UMW and MBM) reported sales of 18.6k units (-12.3% YoY; -1.5% MoM) bringing YTD sales to 137.2k units (+2.6% YoY). Perodua is well on track to meet its 202k sales forecast 2017, supported by earlier launches of Axia facelift and upgraded Bezza in 1H17, as well as upcoming new MyVi in 4Q17.

• Proton (DRB) sales remained weak at 6.5k units (+45.4% YoY; +8.4% MoM) and 51.8k units YTD (+17.6% YoY), falling short of its 120k sales target for 2017. The entrance of Geely as Proton’s Foreign Strategic Partner is expected to provide strong support (platform, R&D, technology and skillset) for Proton’s turnaround plan to recapture domestic market and expand regionally.

• Honda (DRB) sales improved in Aug 2017 with 9.7k units (+17.5% YoY; +13.5% MoM) and 70.8k units YTD (+27.0% YoY) on successful launches of new BRV & CRV, facelifted City & Jazz, as well as Hybrid City & Jazz. Honda’s 2017 car sales target of 100k units is well on track (likely to surpass), supported by these launches.

• Toyota (UMW) recorded sales of 5.7k units (-13.1% YoY; +2.8% MoM). YTD sales increased by +15.8% YoY to 45.0k units on several new variants and facelifted models, achieving 65.7% of 2017 sales target. However, sales for the remaining months are expected to remain challenging.

• Nissan (TCM) sales was weak at 2.6k units (-18.6% YoY; +1.3% MoM) on lack of new models in 2017, bringing 8M17 sales to 18.6k units (-32.0% YoY).

• Other marques combined sales climbed to 8.6k units (+1.1% YoY; +22.8% MoM), but YTD sales dropped to 61.3k units (-13.1% YoY), dragged by Mazda, Mitsubishi, Ford, Hyundai and VW.

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 experience gradual recovery with normalizing of consumer sentiments, but dragged by the weak ringgit in 2017 (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 PECCA (BUY; TP: RM1.90) and DRB (BUY; TP: RM2.15).

Source: Hong Leong Investment Bank Research - 2 Oct 2017