Highlights

• Dec 2017 auto sales rose by +11.3% MoM to 54.7k units. However, it was still a drop of 15.6% YoY, mainly dragged by lower sales of Perodua, Proton and Nissan. Overall, 2017 TIV dropped marginally by 0.6% to 576.6k units, accounting for 97.9% of our full year forecast at 588.8k units. We expect 2018 TIV to increase marginally by 2.0% YoY to 588.1k units, driven by new model launches, uptrend of consumer sentiment and normalization impact of bank tighter lending guidelines.

Comment

• Perodua (UMW and MBM) maintained its leading position with 35.5% market share in 2017. In 2017, Perodua reported lower 1.1% YoY sales at 204.9k units. In 2018, Perodua is targeting 209k units sales (+2.0% YoY), banking on recently launched MyVi (Nov 2017) and the expected new launches of facelifted Alza and new SUV.

• Proton (DRB) also reported lower sales at 71.0k units, down by 1.8% YoY in 2017, mainly dragged by lower sales in 2H of 2017 due to stiff market competition and new launches by major competitors e.g. Perodua and Honda. Proton sales are expected remain tepid in 2018, pending the launch of Boyue by end 2018. Nevertheless, DRB is expected to turnaround in 2018, following the recent divestment of 100% of Lotus and dilution of 49.9% stake in Proton.

• Honda (DRB) reported strong sales at 109.5k units (+19.3% YoY) exceeding its target of 100k units in 2017, maintaining its lead within non-national carmaker segment with 19.0% market share. Honda is expected to continue maintaining strong sales in 2018, banking full year sales contribution from new CRV and facelifted City and Jazz models (including hybrids) as well as expected new launch of facelifted HRV and new Accord in 2018.

• Toyota (UMW) sales improved by +9.0% YoY to 69.5k units in 2017, marginally exceeding its target of 68.5k units. Toyota sales are expected to increase further in 2018 from the anticipated CH-R, upgraded Vios as well as new Camry.

• Nissan (TCM) sales dropped to 27.2k units (-33.3% YoY) in 2017 due to lack of new model launches during the year to excite the market. We expect Nissan will continue in dismal in 2018 despite rumored launch of Nissan Kick, new Serena hybrid and Leaf EV.

• Other marques reported lower combined sales at 94.6k units in 2017 (-9.4% YoY). The lower sales were mainly dragged by Mitsubishi (MMM), Mazda (BAuto) and Ford (Sime).

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: RM1.95) and DRB (BUY; TP: RM2.60).

Source: Hong Leong Investment Bank Research - 24 Jan 2018