Jul 2018 TIV recorded strong sales at 68.5k units (+41.0% YoY; +6.1% MoM) and YTD sales increased to 358.2k units (+7.6% YoY). All OEMs registered stronger sales in Jul 2018, attributed to the zero-rated goods and services tax (GST). However, on MoM basis some OEMs recorded growth while some recorded drop. The drop includes Toyota (UMW), Mazda (BAuto), BMW (Sime) and Mercedes (DRB & C&C), which experienced pent-up deliveries in Jun as they did not offer GST absorption program in May. We maintain our 2018 TIV assumption at 588.1k units (+2.0% YoY), as we remain cautious on sales demand when upcoming sales and service tax (SST) being introduced on Sep 1. We maintain our NEUTRAL call on the sector and our top picks are PECCA (BUY; TP: RM1.35), DRB-HICOM (BUY; TP: RM2.62) and MBM Resources (BUY; TP: RM2.84).

Jul 2018 Total Industry Volume (TIV) registered 68.5k units (+41.0% YoY; +6.1% MoM). Subsequently, 7M18 vehicle sales increased to 358.2k units (+7.6% YoY), attributed to the advantage of tax holiday following the zerorisation of GST in Jun-Aug. We believe that the demand for vehicles should remain healthy in Aug 2018 before the reintroduction of the SST, which comes into effect on Sep 1. We maintain 2018 TIV forecast at 588.1k units (+2.0% YoY), in view of the slower sales post SST implementation in Sep 2018

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 slowdown 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: RM2.62) and MBM Resources (BUY; TP: RM2.84).

Perodua (UMW and MBM) reported strong Jul sales of 23.8k units (+26.0% YoY; +21.5% MoM), bringing YTD sales to 140.9k units (+18.8% YoY). Perodua growth was supported by strong demand for the new MyVi and Axia. Perodua retained its leading position among carmaker with 34.8% market share in Jul 2018. We believe that Perodua target of 209k units (+2.0% YoY) sales for 2018 is achievable, supported by the ongoing strong demand for new MyVi (introduced in Nov 2017), as well as expected high demand for upcoming new SUV and Alza facelift.

Proton (DRB) reported higher sales at 8.1k units (+36.1 YoY; +31.2% MoM) in Jul 2018, mainly driven by Saga and Persona models. Nevertheless, for 7M18, Proton sales were down to 35.2k units (-22.4% YoY). We believe that the strategic partnership with Geely will benefit Proton in the longer term with efforts to restructure and realize synergy. We expect Proton to leverage on the highly anticipated new Boyue SUV, which is slated to be introduced by end 2018.

Honda (DRB) recorded a new high of monthly sales of 12.8k units (+49.3% YoY; +12.2% MoM) in Jul 2018 and Honda recaptured back its position as market leader among non national carmaker with 18.7% market share. YTD sales increased by +5.0% YoY to 64.2k units, on track to achieve its sales target for 2018 of 109k units. Demand remains strong for Honda’s top three models - City, HR-V and CR-V.

Toyota (UMW) sales improved by 64.7% YoY but dropped by 20.5% MoM to 9.1k units in Jul 2018. The MoM drop was due to pent–up deliveries in Jun when customers held back purchases back in May prior to zerorisation of GST. To recap, Toyota did not provide GST rebate pre-implementation of zero-rated GST on 1 Jun. YTD sales improved to 40.8k units (+4.0% YoY). We believe with the upcoming launches of upgraded Vios and new Camry will continue to support Toyota sales in 2018.

Nissan (TCM) sales improved to 3.3k units (+31.2% YoY; +9.8% MoM) in Jul 2018. However, Nissan YTD sales dropped 5.1% YoY to 15.2k units. The new Serena S-Hybrid which was launched in mid-May 2018, have exceeded its expectations, with 4,000 bookings made as of Jun 2018. Nissan sales is expected to remain weak, especially post SST implementation in Sep as no indication of new volume driving models to improve sales.

Others. Similar to UMW, Mazda (BAuto), BMW (Sime) and Mercedes (DRB & C&C), registered YoY growth on stronger demand during GST zerorisation period, but MoM drop due to pent-up deliveries in Jun 2018.

Source: Hong Leong Investment Bank Research - 20 Aug 2018