Nov 2018 TIV was relatively flat at 48.3k units (-1.8% YoY; +2.1% MoM). YTD sales improved to 550.5k units (+5.5% YoY), due to the strong demand during the tax holiday in Jun-Aug 2018. In Nov 2018, Perodua (UMW and MBM), Nissan (TCM), Mazda (BAuto), BMW (Sime) and Mercedes (DRB) reported higher MoM sales. Given the strong YTD sales at +5.5% YoY, we increase our 2018 TIV assumption to 602.6k units, a growth of +4.5% YoY (from +2.5% YoY). However, we downgrade auto sector to NEUTRAL (from Overweight), given the moderating outlook of the sector in 2019, with a drop of 1.0% YoY in TIV and weakened RM/USD outlook. Our top picks are BAuto (TP: RM2.70), DRB (TP: RM2.80) and Pecca (TP: RM1.35).

Total industry volume (TIV) in Nov 18 climbed 2.1% MoM to 48.3k units. However, it slipped a marginal -1.8% YoY. 11M18 TIV increased by +5.5% YoY to 550.5k units following strong sales during the tax holiday period (Jun-Aug). We expect TIV sales in Dec 2018 to improve further MoM due to new model launches and aggressive year end promotions. Following the strong YTD TIV growth of +5.5% YoY, from higher sales volume and demand during tax holiday period (Jun-Aug 2018), we tweak our 2018 TIV growth to +4.5% YoY to 602.6k units.

Downgrade the sector to NEUTRAL (from Overweight), given the moderating outlook of the sector in 2019, with the expectation of lower 2019 TIV and weakened RM/USD in 2019.

Our top picks are BAuto (TP: RM2.70), DRB (TP: RM2.80) and Pecca (TP: RM1.35).We also downgrade UMW to SELL (from BUY), with a lower TP: RM4.75 (from RM5.60) based on 10% discount to SOP of RM5.28, following the recent run-up of share price and HLIB’s cut in UMW’s FY18-20 core earnings by 10-16%, to include the distribution of RM70m p.a. for Perpetual Sukuk.

Perodua (UMW and MBMR) reported strong sales improvement to 21.1k units (+26.9% YoY; +8.1% MoM) following the resumption of Myvi production since Oct. Likewise YTD sales improved to 208.8k (+13.1% YoY), reaching their sales target of 209k units (+2.0% YoY). This was attributed to the continued strong demand for its bestselling new Myvi and Axia. In Nov 2018, Perodua maintained its leading position with market share of 43.7%. We remained upbeat on Perodua sales performance given strong demand for its best-selling Myvi (Nov 2017), newly launched Alza facelift (Aug 2018) as well as upcoming Perodua SUV to be launched in Feb 2019.

Proton (DRB) sales was reported at 4.8k units (+0.2% YoY; -5.4% MoM). The MoM decline was due to supply constraint faced by Proton despite offering zero SST pricing policy in Nov 2018. YTD, Proton sales dropped to 59.1k units (-10.6% YoY). Proton offered generous incentives to upgrade their facilities to 3S and 4S centres following their strategy to expand their network. To date, Proton has approved 115 planned 3S and 4S centres (exceeding their target of 109 centres) and has launched 71 of these centres. Besides, the recent launch of Proton X70 SUV, which has garnered over 10k pre-launch bookings, will help to boost Proton sales in Dec 2018.

Honda (DRB) reported Nov 18 sales dropped to 7.1k units (-32.3% YoY; -2.0% MoM), bringing YTD sales to 94.3k units (-4.1% YoY). This was mainly due to high base effect as well as slowdown for HR-V sales following anticipation of upcoming facelift HR-V. However, Honda still maintained its leading position among non-national carmaker with 14.7% market share in Nov.

Toyota (UMW) posted dismal sales of 3.8k units (-43.3% YoY; -19.4% MoM) in Nov 2018 due to running out of stocks for the out-going Vios and Camry model. YTD sales dropped marginally by -1.6% YoY to 61.2k units. Given strong competition from other marques, Toyota is unlikely to achieve its 2018 target sales of 70k units. The upcoming new CKD Vios and new CBU Camry will help to boost Toyota sales volume next year.

Nissan (TCM) posted sales volume at 2.5k units (+18.2% YoY; +0.3% MoM), contributing to higher YTD sales at 25.7k units (+3.4% YoY). The improvement was attributed to strong demand for the new Serena S-Hybrid. Nevertheless, we expect Nissan sales to remain dismal due to lack of exciting new volume driving model and intense competition from other marque.

Mazda (BAuto) sales was up to 1.9k units (+87.0% YoY; +14.3% MoM), bringing YTD to 14.6k units (+61.7% YoY) as they continue to fulfil the high backlog orders of the new CX-5. In 2019, Mazda will introduce the new Mazda CX-8 and new Mazda 3 in 2HCY19.

Others. BMW (Sime) registered higher sales of +8.0% YoY and +16.1% MoM at 1.1k units, while Mercedes (DRB & C&C) sales dropped by -9.6% YoY but higher MoM by +3.9% at 1.0k units.

Source: Hong Leong Investment Bank Research - 19 Dec 2018