Highlights

• Oct 2017 TIV was up MoM by +14.8% to 47.0k units from 41.0k units in previous month but marginally lower YoY by 1.8%. 10M17 total industry volume (TIV) was reported at 472.8k units (+1.4% YoY), falling short of our expectation for 2017. Thus, we cut our forecast to 591.7k (+2.0% YoY) units from 600.6k units (+3.5% YoY) previously. We expect sales for the remaining 2017 to be supported by new model launches, normalization of consumer sentiments and year end sales campaigns.

Comment

• Perodua (UMW and MBM) reported strong sales at 16.5k units (+2.1% YoY; +14.9% MoM) bringing YTD sales to 168.1k units (+0.6% YoY). Perodua is in line to achieve its sales target of 202k units in 2017. We believe the recent launch of new Myvi will boost Perodua sales in the next 2 months, achieving its sales target.

• Proton (DRB) registered sales at 5.1k units (-33.5% YoY; +13.0% MoM). YTD sales was at 61.4k units (+6.3% YoY). Proton continues to fall short its 120k sales target for 2017. We believe Proton will benefit from Proton-Geely’s JV in terms of platform, technology and skillset. Proton will introduce new SUV model based on Geely Boyue in 2H18.

• Honda (DRB) reported continuous strong sales at 9.1k units (+10.5% YoY; +14.7% MoM) in Oct and 87.8k unit (+22.9% YoY) in YTD. Banking on successful launches and on-going strong demand for the newly launched BRV & CRV, facelifted City & Jazz, and Hybrid City & Jazz, Honda is expected to surpass its sales target of 100k units in 2017.

• Toyota (UMW) recorded higher sales in Oct at 6.2k units (+12.7% YoY; +42.6% MoM). YTD sales increased by +11.0% YoY to 55.5k units. Toyota is on track to achieve its targeted 68.5k sales in 2017 banking on its recent launches of new variant and facelifted model. However, Toyota is expected to face stiff competition from other OEMs.

• Nissan (TCM) sales plunged to 2.0k units (-18.1% YoY; -6.6% MoM) on lack of new models introduction, bringing 10MFY17 sales to 22.8k units (-30.7% YoY). Nissan will continue to struggle due to the absence of new models to compete with rivals OEMs.

• Other marques combined sales was 8.2k units (+3.2% YoY; +6.1% MoM) and YTD sales was 77.2k units (-11.4% YoY). The segment was led by Mercedes, Isuzu, BMW and Mazda.

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 - 20 Nov 2017