May 2018 vehicle sales dipped to 43.0k units (-15.0% YoY; -8.7 MoM), due to customer holding back purchases pre zerorisation, of GST in Jun 2018 which further dragged YTD sales lower to 252.2k units (-3.8% YoY). Perodua (UMW and MBM), Proton (DRB), Honda (DRB) and Nissan (TCM) reported higher MoM sales in May 2018 thanks to implementation of GST subsidy/rebate programs to boost sales towards end of May. We maintain our 2018 TIV assumption at 588.1k units (+2.0% YoY) as we anticipate strong sales growth in Jun-Aug period due to the “tax holiday” window. We maintain NEUTRAL and our top picks are PECCA (BUY; TP: RM1.35), DRB-HICOM (BUY; TP: RM2.50) and MBM Resources (BUY; TP: RM2.84).

Malaysian Automotive Association (MAA) reported that May 2018 TIV dropped to 43.0k units (-15.0% YoY; -8.7 MoM). We attribute the weaker month was due to customers holding back their purchases prior to GE14 (9 May) and the implementation of zero-rated GST starting 1 Jun 2018. Cumulative vehicles sales tapered off by 3.8% YoY to 225.2k units. However, we expect sales to spike up in Jun-Aug period on the back of effective lower car prices on promotional offers during Hari Raya season as well as tax holiday from the “zerorisation” of GST (Jun-Aug 2018) but before SST kicks in on Sep 2018. We maintain our 2018 TIV assumption of 588.1k units (+2.0% YoY).

We maintain NEUTRAL on the sector. The benefits from the expected spike in car sales in Jun-Aug period (during 0% GST) will be partly offset by the sales downturn in Sep-Dec period (implementation of 10% SST) as well as weakened RM/USD outlook. Our top picks are PECCA (BUY; TP: RM1.35), DRB-HICOM (BUY; TP: RM2.50) and MBM Resources (BUY; TP: RM2.84).

Perodua (UMW & MBMR) maintained its leading position with 22.0k units sales (+27.7% YoY; +10.2% MoM) and achieved its highest monthly market share of 51.1%, on its successful GST subsidy program for 18-31 May in normalizing sales demand prior to the effective zerorisation of GST on 1 Jun. YTD, Perodua reported sales of 97.5k units (+19.1% YoY) thanks to the strong demand for its best-selling new Myvi and Axia. Perodua is well on track to meet its 209k units (+2.0% YoY) sales target for the year, given the high demand for the new Myvi, the expected new SUV model and Alza facelift which will be introduced by end 2018.

Proton (DRB) sales was 4.1k units, an improvement of 2.3% MoM, but a drop 43.0% YoY due to high base effect of newly launched Saga, Persona and Ertiga. Its YTD sales decreased by 34.9% YoY to 20.9k units, as consumers withheld purchases in anticipation of new Boyue based SUV model in 4Q18. We believe the collaboration between Proton and Geely will contribute positively to Proton’s turnaround, given the strong support from Geely to improve Proton’s production and operational efficiency, product quality and continuous new model introduction line-up.

Honda (DRB) continues to lead the foreign segment with 8.0k units sales (-12.1% YoY, +4.4% MoM) and market share of 18.7% in May 2018. Similarly, Honda also announced GST Bonus program, where it absorbed the 6% GST on selected vehicles, namely City (non-hybrid), Civic, CR-V and HR-V. YTD basis, Honda sales declined by 8.7% YoY to 39.9k units due to high base effect. Honda is targeting 109k units sales in 2018 banking on facelift HR-V which will be introduced in 2H18.

Toyota (UMW) reported disappointing sales at 2.0k units (-66.6% YoY; -63.3% MoM). We note that Toyota did not provide GST rebate/subsidy ahead of the actual implementation of zero-rated GST on 1 Jun. YTD, Toyota sales fell 28.8% YoY to 20.2k units. Their 2018 sales target of more than 70k units would be a difficult task given the stiff competition from other marques. In 2018, Toyota has introduced the new Harrier, new CH-R, upgraded Alphard and Vellfire and is expected to launch upgraded Vios and new Camry.

Nissan (TCM) sales improved 29.8% MoM to 2.0k units but declined 23.1% YoY. Consequently, Nissan YTD sales dropped 17.4% YoY to 8.9k units. The new Serena S-Hybrid which was launched in Mar, has recorded 2.5k bookings so far. Other models that we can expect from Nissan include the new Urvan CKD version and Leaf CBU. However, these new models are not volume driving models that can boost overall sales for Nissan in 2H18.

Others. Other major marques also recorded drops in MoM and YoY sales in May as they did not offer GST subsidy/rebate program, rendering consumers to hold back purchases prior to the effective zerorisation of GST on 1 Jun. Mazda (BAuto) sales dropped 31.6% YoY and 45.3% MoM; BMW (Sime) dropped 36.7% YoY and 40.0% MoM; and Mercedes (DRB & C&C) dropped 31.3% YoY and 26.5% MoM.

Source: Hong Leong Investment Bank Research - 22 Jun 2018