MAA recorded that TIV in Sep 2018 slipped to low 31.2k units (-23.7% YoY; -52.3% MoM) attributed to lower demand in Sep following reintroduction of SST in Sep 2018 and production disruption faced by Perodua. In Sep 2018, Perodua (UMW and MBM), Toyota (UMW), Honda (DRB), Nissan (TCM) and Mercedes (DRB) reported lower MoM sales. Nevertheless, YTD TIV still up by 6.9% YoY to 455.0k units. We maintain our 2018 TIV assumption at 588.1k units (+2.0% YoY) and NEUTRAL rating on the sector. Our top picks are PECCA (BUY; TP: RM1.35), DRB-HICOM (BUY; TP: RM2.80) and MBM Resources (BUY; TP: RM3.04).

The Malaysian Automotive Association (MAA) reported that TIV for Sep 2018 dropped to 31.2k units (-23.7% YoY; -52.3% MoM). We believe that Sep 2018 sales volume was down due (i) to reintroduction of SST during the month as most customers have brought forward their purchases during the tax holiday Jun-Aug period and (ii) Perodua (UMW and MBM) sales were affected by vendor issues of Myvi production since Aug 2018. Nevertheless, YTD TIV improved by 6.9% YoY to 455.0k units, driven by the strong demand during the GST “zerorisation” period. Overall, 9M18 TIV made up 77.4% of both ours and MAA’s full-year forecast of 588.1k units, in line with our expectation. We maintain our forecast of 588.1k units (+2.0% YoY) for 2018 in view of the slower TIV in Oct-Dec, affected by SST 2.0.

We maintain NEUTRAL on the sector. The benefits from the 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: RM2.80) and MBM Resources (BUY; TP: RM3.04).

Perodua (UMW and MBM) sales dropped to 9.5k units (-34.0% YoY; -46.8% MoM) with market share of 30.3% in Sep 2018. On top of the overall lower sales demand, the drop in Perodua sales was also partially due to Myvi production halt since early Aug 2018 due to technical issues from one of its vendor for dashboard mould. However, Myvi production has normalized since early Oct and we expect Perodua sales for this month to return back to normal. Perodua YTD sales increased 11.0% YoY to 168.2k units. We believe Perodua is likely to surpass its 209k target in 2018 driven by its best-seller Myvi and newly launched Alza facelift (Sep 2018).

Proton (DRB) registered 4.5k units (+0.6% YoY; -52.4% MoM) in Sep 2018 as the new SST 2.0 came into force. Its YTD sales has also slipped to 49.2k units (-12.5% YoY). Proton also announced that they will extend the period of absorbing SST for all cars to Oct to allow customers to enjoy another month of SST-free prices. We expect Proton to register stronger sales level towards year end following the expected introduction of SUV X70 model in Nov. The booking for the new SUV X70 has been encouraging with more than 8,000 orders since bookings began in Sep 2018.

Honda (DRB) sales declined to 5.0k units (-37.2% YoY; -54.0% MoM). However, its YTD sales still registered marginal growth of 1.5% YoY to 79.9k units. Honda retained its positions as market leader among non-national carmaker with 15.9% market share in Sep 2018. Honda is on track to achieve its targeted 109k sales volume in 2018 as its YTD 9M18 sales accounted for 73.3% of its sales target. Honda is banking on as the upcoming facelifted HR-V model to achieve its target in 2018.

Toyota (UMW) sales in Sep 2018 also dropped to 3.0k units (-30.3% YoY; -65.7% MoM) following the reintroduction of SST. However, its YTD sales improved to 52.6k units (+6.8% YoY). Toyota has launched the new models Harrier and CH-R as well as facelifted Alphard and Vellfire. In 4Q18, we expect Toyota to launch new Rush and Camry, supporting its year end sales.

Nissan (TCM) recorded lower sales at 2.0k units (-7.0% YoY; -42.8% MoM). YTD sales declined by 0.1% YoY to 20.7k units. Nissan has introduced the new Serena S-Hybrid and is expected to launch the new Urvan CKD version and Leaf CBU. We believe Nissan sales will remain lacklustre due to aged model line-up and lack of volume driving models that can boost Nissan sales.

Others. Mazda (BAuto) car sales was down 38.3% MoM but up 65.1% YoY to 1.2k units in Sep 2018, bringing YTD sales to 11.0k units (+57.8% YoY) following the introduction of the new CX-5 (Nov 2017), facelifted Mazda 6 (Aug 2018) and facelifted CX-3 (Aug 2018). Similarly, BMW (Sime) also reported lower MoM sales at 1.0k units, but relatively flat +0.8% YoY. Mercedes (DRB & C&C) registered disappointing sales at 0.5k units (-44.3% YoY; -61.3% MoM) post introduction of SST in Sep 2018.
 

Source: Hong Leong Investment Bank Research - 17 Oct 2018