TIV in Apr 18 was reported at 47.1k units (+10.2% YoY; -5.8% MoM). 4M18 sales declined marginally by 0.7% to 182.2k units. We maintain our 2018 TIV assumption at 588.1k units (+2.0% YoY). In Apr 2018, Toyota (UMW), Mercedes (DRB & CnC) and BMW (Sime) grew MoM, while Mazda (BAuto) and Perodua (UMW and MBM) sales were stable MoM. Proton (DRB), Honda (DRB) and Nissan (TCM) recorded lower MoM sales. We maintain NEUTRAL and our top picks are PECCA (BUY; TP: RM1.72) and DRB (BUY; TP: RM2.88).

Apr 2018 total industry volume (TIV) improved by 10.2% YoY but declined by 5.8% MoM to 47.1k units. Cumulative TIV for YTD April reached 182.2k units, down marginally by 0.7%, attributed by the wait and see approach ahead of GE14. We believe sales in upcoming 2 months will be stronger as OEMs have started to cut prices (up to 6%) by mid-May prior to the effective GST zeroization from current 6% starting 1 Jun 2018. Consumers will then be able to enjoy 2 to 3 months of tax holiday before SST comes into the picture. In addition, the sales volume usually surged during pre-Raya season due to aggressive marketing campaigns and higher consumer spending during festive season. We maintain our 2018 TIV assumption at 588.1k units (+2.0% YoY) on the expectation of high demand for new model launches, uptrend of consumer sentiment and normalization impact of bank tighter lending guidelines.

We remain NEUTRAL on the sector. The sector is expected to be supported by recovering 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. Our top picks are PECCA (BUY; TP: RM1.72) and DRB (BUY; TP: RM2.88).

Perodua (UMW and MBM) continued to report strong monthly sales at 19.9k sales (+38.7% YoY; -3.9% MoM) with new record high 42.3% market share in Apr 2018. YTD, it registered 75.5k sales (+16.8% YoY), driven mainly by high demand for the new Myvi and Axia. The new Myvi has gathered 70k units booking up to April 2018 with 38k units delivered. Perodua is likely to surpass its 209k sales target in 2018 banking on the strong demand for the new Myvi (launched last Nov 2017) as well as upcoming new SUV and Alza facelift by year end.

Proton (DRB) recorded poor sales at 4.0k units (-28.8% YoY; -4.9% MoM) in Apr 2018. YTD, Proton YoY sales declined by 32.6% at 16.8k units. With Proton-Geely’s joint venture, we believe this will positively bode well for DRB’s turnaround from Geely’s platform, technology and skillset. The new government has stated that it will not interfere with Proton, which will likely ease investors’ concern on Geely participation in Proton’s strategic turnaround plan.

Honda (DRB) sales improved YoY by 5.8%, but weakened MoM by 14.8% to 7.7k units. YTD sales declined by 7.7% YoY to 31.9k units from high base as Honda launched new BRV and facelift City in 1Q17. Honda remains the market leader among non-national carmaker with 16.4% market share in Apr. Honda is banking on one model, facelift HR-V in order to reach its target of 109k units in 2018.

Toyota (UMW) recorded sales of 5.5k units (-5.2% YoY; +7.0% MoM). YTD sales decreased by 18.5% YoY to 18.2k units. Toyota has set a target for 2018 to be more than 70k unit sales, which we believe would be a challenging task given the strong competition from other marques. Toyota has begun the delivery for the new Harrier and the new CH-R and has introduced the upgraded Alphard and Vellfire in Feb 2018. Other new launches that we can expect from Toyota include upgraded Vios and new Camry.

Nissan (TCM) sales remained disappointing at 1.6k units (-27.3% YoY; -21.5% MoM) dragging YTD sales to 6.9k units (-15.6% YoY). Nissan sales will remain lacklustre from intense competition and ageing model line-up. In Mar 2018 Nissan has introduced the new Serena S Hybrid MPV and is expected to launch the new Urvan CKD version and Leaf CBU in 2018.

Others. Mazda (BAuto) recorded continue healthy YoY growth of +14.1% to 1.1k units, but notably flat +0.2% MoM in Apr. YTD sale growth was 48.7% YoY.

Source: Hong Leong Investment Bank Research - 24 May 2018