Highlights

• September auto sales declined by 20.8% MoM and 14.8% YoY to 41.0k units due to shorter working month in September. Nonetheless, 9M17 sales was up by 1.8% YoY to 425.7k units. We maintain our 2017 TIV assumption of 600.6k units (+3.5% YoY) as we expect year-end growth from new model launches, normalization of consumer sentiments and year-end sales campaigns.

Comment

• Perodua (UMW and MBM) reported lower sales at 14.4k units (-16.3% YoY; -22.9% MoM). YTD sales was reported at 151.6k units (+0.5% YoY), accounting for 75% of Perodua’s 202k sales target for 2017. The sales target is achievable given the sustainable demand for Axia and Bezza and expected strong demand for upcoming new MyVi in 4Q17.

• Proton (DRB) registered sales at 4.5k units (-25.8% YoY; -30.3% MoM), bringing YTD sales to 56.3k units (+12.4% YoY). With Geely as Proton’s foreign strategic partner, Proton will be leveraging on Geely’s technology, skill set and financial muscle for turnaround. Proton will introduce new SUV model based on Geely Boyue in 2H18.

• Honda (DRB) sales was 7.9k units (+5.4% YoY; -18.8% MoM) in Sep and 78.7k unit (+24.5% YoY) in YTD. Honda is expected to surpass its sales target of 100k units in 2017, given the on-going strong demand for the newly launched BRV & CRV, facelifted City & Jazz, and Hybrid City & Jazz.

• Toyota (UMW) recorded lower sales at 4.3k units (-23.5% YoY; -23.8% MoM) in Sep. YTD sales increased by +10.8% YoY to 49.3k units, accounting for 71.9% of Toyota sales target of 68.5k units for 2017. The OEM is slightly behind its target in 9M17, while outlook for 4Q17 remains challenging.

• Nissan (TCM) sales declined to 2.2k units (-29.4% YoY; -15.6% MoM) on lack of new models introductory in 2017, bringing 9MFY17 sales to 20.8k units (-31.7% YoY). Nissan sales will remain disappointing due to intense competition of rivals and lack of new model to catch up sales.

• Other marques combined sales was down to 7.7k units (-11.1% YoY; -10.7% MoM) and YTD sales registered at 69.0k units (-12.8% YoY), dragged mainly by Mitsubishi, Mazda, Ford and Hyundai.

Risks

• Prolonged tightening of banks’ HP rules.

• Slow pace 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 from normalizing of consumer sentiments, while remain affected 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 - 19 Oct 2017