Highlights

• November 17 TIV was up by 0.2% YoY and 4.6% MoM to 49.2k units, thanks to new model launches in the month and aggressive promotional activities. This pushed 11M17 sales volume to 521.9k units (+1.3% YoY), but full year 2017 TIV may fall behind our forecast of 591.7k units (+2.0% YoY). We expect stronger sales in Dec 17 due to strong orders for newly launched MyVi as well as majority of the OEMs are engaging aggressive year-end sales campaign.

Comment

• Perodua (UMW and MBM) recorded healthy sales at 16.6k units (+7.7% YoY; +0.9% MoM), bringing YTD sales to 184.7k units (+1.2% YoY). We believe Perodua will be able to surpass its sales target of 202k units boosted from the strong demand for recently launched Perodua MyVi. The latest MyVi has received 20k bookings within just one month. Perodua is expected to introduce SUV model in 2018.

• Proton (DRB) sales fell to 4.8k units (-34.4 YoY; -5.4% MoM) and YTD sales was at 66.2k units (+1.7% YoY). Proton continues to fall short its 120k sales target for 2017, due to intense competitions and deteriorated consumer confidence. We believe the recent agreement with Geely will benefit positively to Proton’s position in the longer term with restructuring and synergies being implemented and new model introductions in 2H18.

• Honda (DRB) sales expanded to 10.5k units (+17.7% YoY; +15.6% MoM) in Nov, bringing 11M17 sales to 98.3k unit (+22.3% YoY). Honda should surpass its sales target of 100k units in 2017, attributed to the successful launches and on-going strong demand for the new BRV & CRV, facelifted City & Jazz, and Hybrid City & Jazz.

• Toyota (UMW) recorded better sales at 6.8k units (+5.8% YoY; +9.1% MoM). YTD sales increased by +10.4% YoY to 62.3k units. Toyota is on track to achieve its targeted 68.5k sales in 2017. The marque is expected to introduce several models in 2018 including Rush, Camry, Vios and C-HR.

• Nissan (TCM) sales remained disappointing at 2.1k units (-30.5% YoY; +5.5% MoM) and YTD sales at 24.9k units (-30.7% YoY). This was due to intense competition and no new model introduced from the marque.

• Other marques combined sales was 8.4k units (+5.1% YoY; +2.2% MoM) and YTD sales was 85.6k units (-10.0% YoY) 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 Dec 2017