Highlights

• According to Malaysian Automotive Association (MAA), TIV for Feb 18 dropped to 40.6k units (-4.4% YoY; -9.0% MoM). This was in line with expectations as February is typically a shorter working month due to CNY celebration. YTD sales dropped 2.3% YoY to 85.2k units. We maintain our 2018 TIV assumption at 588.1k units (+2.0% YoY) on expectation of high demand for new model launches, uptrend of consumer sentiment and normalization impact of bank tighter lending guidelines.

Comment

• Perodua (UMW and MBM) reported sales of 17.1k units (+3.2% YoY; -3.1% MoM), bringing YTD sales to 34.8k units (+13.1% YoY). Perodua growth was supported by strong demand for the new MyVi and Axia. Perodua is targeting 209k units (+2.0% YoY) sales for 2018, supported by strong demand for new MyVi and upcoming new SUV and Alza facelift.

• Proton (DRB) sales declined to 3.9k units (-36.8% YoY; -19.4% MoM), dragging YTD sales to 8.6k unit (-35.1% YoY). The entrance of Geely as Proton’s strategic partner is expected to improve Proton’s product quality, technology and model line-up to recover its market share.

• Honda (DRB) sales declined to 7.0k units (-9.1% YoY; -14.0% MoM). Similarly, YTD sales was down to 15.1k units (-7.1% YoY). For 2018, Honda is targeting car sales at 109k units, supported by the upcoming new launches of facelifted HRV, facelifted Odyssey and new Accord.

• Toyota (UMW) sales improved by +11.1% MoM to 4.0k units but dropped -12.6% YoY. YTD sales was 7.5k units (-27.2% YoY). We believe with the upcoming launches for facelift Vios, new CH-R, new Harrier and new Camry will improve Toyota sales in 2018.

• Nissan (TCM) continued to report weak sales at 1.3k units (-28.0% YoY; -35.2% MoM), dragging YTD sales to 3.3k units (-1.6% YoY) due to lack of new models. Nissan is expected to launch new Nissan Kick, new Serena hybrid and Leaf EV in 2018.

• Other marques combined sales was at 7.3k units (+28.0% YoY; -12.8% MoM) and YTD sales was 15.7k units (+20.7% YoY). The segment was led by Merc (C&C), Mazda (BAuto) and BMW (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 be supported by rebounding TIV growth in 2018, with improvement in consumer sentiment and normalizing impact from tighten bank guideline. While stronger RM will improve the industry margins, the higher basic material costs may partially offset the benefits of RM appreciation.

Valuation

• We maintain NEUTRAL on the sector. Our top picks are PECCA (BUY; TP: RM1.72) and DRB (BUY; TP: RM2.88).

Source: Hong Leong Investment Bank Research - 21 Mar 2018