Oct 2018 TIV picked up MoM to 47.3k units (+0.5% YoY; +51.3 MoM) bringing YTD sales to 502.2k units (+6.2% YoY), mainly attributed to normalization of Perodua production. In Oct 2018, major marques that recorded high MoM sales include Perodua (UMW & MBMR) at 19.5k units, Honda (DRB) at 7.2k units, Toyota (UMW) at 4.8k units and Mazda (BAuto) at 1.7k units. We maintain our 2018 TIV assumption at 588.1k units (+2.0% YoY) and upgrade our sector call to OVERWEIGHT (from Neutral). Our top picks are BAuto (BUY; TP: RM 2.70), Pecca (BUY; TP: RM1.35) and DRB-HICOM (BUY; TP: RM2.80).

Malaysian Automotive Association (MAA) reported Oct 2018 total industry volume (TIV) increased to 47.3k units (+0.5% YoY; +51.3% MoM), mainly attributed to the normalization of Perodua production. To recap, Perodua faced disruption at one of its vendors, resulting in backlog orders of around 22k Myvi model since Sep 2018. YTD sales increased by 6.2% YoY to 502.2k units due to strong demand during 0% GST in Jun-Aug period. We anticipate Nov 2018 sales to report higher sales attributed to new model launches and year end promotional campaigns. We maintain 2018 TIV forecast at 588.1k units (+2.0% YoY), in view of the slower sales post SST implementation in Sep 2018.

Following our recent initiation of BAuto with BUY recommendation and upgrade of UMW to BUY (from Hold) and Sime to HOLD (from Sell), we upgrade our sector call to OVERWEIGHT (from Neutral). We believe the sector has been oversold in recent months. Our top picks are BAuto (BUY; TP: RM2.70), Pecca (BUY; TP: RM1.35) and DRB HICOM (BUY; TP: RM2.80).

Perodua (UMW and MBM) maintained its leading position with 19.5k units sales (+18.4% YoY; +106.2% MoM). The increase in Perodua sales was within expectation, following the normalization of Myvi production after sorting out technical issues from one of its vendor for dashboard mould. YTD, Perodua reported sales at 187.7k units, a growth of +11.7% YoY, thanks to the strong demand for their bestselling new Myvi and Axia. Perodua continued its leading position of 41.3% market share in Oct 2018. Perodua is well on track to surpass their 209k units (+2.0% YoY) target, driven by Myvi as well as Alza facelift which was introduced in Sep 2018.

Proton (DRB) sales improved to 5.1k units (+0.2% YoY; +12.6% MoM) in Oct 18 after extending the period of absorbing SST to Oct. However, its YTD sales slipped 11.5% YoY to 54.3k units. For their aspiration to improve customer experience, Proton has approved 113 outlet submissions to upgrade to new 3S and 4S centres, equivalent to a 104% achievement over the target of 109. We expect Proton to register stronger sales level towards year end following the expected introduction of SUV X70 model in Dec. Proton announced it has received over 10k pre-launch bookings for the Proton X70 SUV.

Honda (DRB) sales increased improved 46.0% MoM to 7.2k units but dropped by 20.1% YoY. YTD sales declined marginally by 0.7% YoY to 87.2k units from high base as Honda introduced few new models in 2017. Honda remains as the market leader among non national carmaker with 15.3% market share in Oct. Honda is slight behind its 2018 sales target of 109k, while the highly anticipated H-RV facelift launch is likely to have been delayed into Dec.

Toyota (UMW) recorded 4.8k unit sales in Oct 2018 which increased by 57.8% MoM but dropped 23.3% YoY. YTD sales increased by 3.5% YoY to 57.4k units with Hilux and Vios as the top selling models. Toyota has set a target for 2018 to be more than 70k unit sales, which we believe would be challenging given the strong competition from other marques. Sales in Nov-Dec period will be supported by recently launched new Rush and upcoming new Camry. Toyota is also expected to introduce the new Vios in early 2019 in order to lift overall sales volume next year.

Nissan (TCM) reported impressive sales in Oct 2018 at 2.5k units (+24.4% YoY; +24.8% MoM) bringing its YTD sales to 23.2k units (+2.0% YoY). 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 dull due to its aged model line-up and lack of volume driving models that can boost sales.

Mazda (BAuto) sales was up to 1.7k units (+64.1% YoY; +37.4% MoM) following the high backlog orders of the new CX-5 (Nov 2017), as well as newly launched facelifted Mazda 6 (Aug 2018) and facelifted CX-3 (Aug 2018).

Others. Similarly, Mercedes (DRB & C&C) registered higher sales at 0.9k units (+21.2% YoY; +72.9% MoM) in Oct 2018 while BMW (Sime) reported lower sales of 0.9k units (-4.6% YoY; -7.9% MoM).

Source: Hong Leong Investment Bank Research - 21 Nov 2018