Jun 2018 TIV recorded strong sales at 64.5k units (+28.3% YoY; +50.1% MoM), attributed to the zero rated GST implementation and promotional activities ahead of the Hari Raya festive season. The strong Jun TIV pushed up 1H18 TIV to 289.7k units (+1.9% YoY), accounting for 49.2% of our 2018 TIV expectation. In Jun 2018, with the exception of Perodua (which offered GST subsidies in May), all other major marques recorded stronger MoM sales. We maintain our 2018 TIV assumption at 588.1k units (+2.0% YoY) as we expect strong sales in Jun-Aug period due to the tax holiday period. 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).

June 2018 TIV showed a strong rebound to 64.5k units (+28.3% YoY; +50.1% MoM), mainly driven by the soaring demand for vehicles arising from a reduction in car prices due to the “zerorisation” of GST in the month and attractive promotions and offers during the Hari Raya festive season. The strong June month has pushed YTD TIV growth to +1.9% YoY at 289.7k units. 1H18 sales achieved 49.2% of our TIV forecast, in line with our expectation. We maintain 2018 TIV forecast at 588.1k units (+2.0% YoY), in view of strong TIV in Jul - Aug 2018 before SST kicks in Sep 2018 as well as expected aggressive year-end sales campaigns and attractive new model launches in 2H18.

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) sales improved 10.0% YoY but declined 10.8% MoM to 19.6k units. However, Perodua remained its leading position with 30.4% market share in Jun. YTD, Perodua reported sales of 117.1k units (+17.5% YoY) thanks to the strong demand for its best-selling new Myvi and Axia. Perodua is likely to surpass its 209k target in 2018, as it has achieved 56.3% of the target in 1H18. Sales is expected to remain strong in 2H18, driven by continued strong demand for the new Myvi (introduced in Nov 2017) as well as upcoming new SUV and Alza facelift, slated to be launched by 4Q18.

On the other hand, Proton (DRB) sales dropped 14.6% YoY, but improved by 50.9% MoM to 6.2k units. YTD sales declined by 31.2% YoY to 27.1k units. We believe Proton sales will remain lacklustre, pending the launch of the new SUV Boyue by end 2018. 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. The new management has been emphasizing on improving product quality and customer experiences (dealership upgrades) for the past months in order to reclaim back customer confidence.

Honda (DRB) registered other strong monthly sales at 11.4k units (+29.6% YoY; +41.9% MoM). However its YTD sales slipped marginally to 51.4k units (-2.2% YoY) from high base effect due to multiple launches in 1H17 – new BR-V (Jan 2017), City facelift (Mar 2017) and Jazz Hybrid (Jun 2017). Nevertheless, Honda is on track to achieve its targeted 109k sales volume in 2018, banking on continued strong demand for its various model launches in 2017 as well as upcoming facelifted HR-V model (expected to be launch in 3Q18).

Toyota (UMW) recorded impressive sales jump in Jun 2018 at 11.5k units (+115.4% YoY; +466.5% MoM), mainly due to pent-up demand from a disappointing May sales, as consumer withheld purchases before “zerorisation” of GST. However, YTD sales decreased by 6.0% YoY to 31.7k units. Despite the tax holiday period from Jun to Aug 2018, we believe Toyota sales target for 2018 of more than 70k unit sales would be a tough task as 1H18 sales only accounted for 45.2% while market competition remained intense from other marques. In 2H18, we expect Toyota to launch the upgraded Vios and new Camry.

Nissan (TCM) recorded better sales at 3.0k units (+9.9% YoY; +47.6% MoM). YTD sales dropped by 11.9% YoY to 11.9k units. New launches (Serena S-Hybrid, Urvan CKD and Leaf CBU) by Nissan in 2018 are not expected to contribute material sales volume. We believe Nissan will not be able to fully take advantage of the zero-rated GST implementation due to aged model line-up and lack of volume driving models that can boost Nissan sales.

Others. Other major marques also registered significant improvement in YoY and MoM as a result of “zerorisation” of GST. In June 2018, Mazda (BAuto) sales jumped higher to 1.5k units (+89.0% YoY; +145.8% MoM); BMW (Sime) registered1.4k units (+49.2% YoY; +155.6% MoM) and Mercedes (DRB & C&C) registered 1.8k units (+44.8% YoY; +141.2% MoM).

Source: Hong Leong Investment Bank Research - 19 Jul 2018