Aug 2019 TIV was at 51.1k units, sustained +0.6% MoM, but dropped 22.0% YoY due to GST exemption in Aug 2018 which led to high base effect. YTD TIV dropped by 6.0% YoY to 398.3k units mainly due to high base effect of GST exemption period. We expect continued strong demand for Proton, Perodua and Toyota new models to sustain TIV for remaining months of the year. For 2019 TIV forecast, we are maintaining at 596.6k units (-0.35% YoY), as we expect reversal to positive growth in Sep-Dec 2019. We maintain OVERWEIGHT on automotive sector with top picks of DRB (BUY; TP: RM3.50) and BAuto (BUY; TP: RM2.85).

Malaysian Automotive Association (MAA) reported Aug 2019 TIV at 51.1k units, a marginal MoM growth of +0.6%. However, on YoY basis, TIV dropped for third consecutive months at -22.0%, which dragged YTD by -6.0% to 398.3k units due to high base effect of GST exemption period in Jun-Aug 2018. We maintain our 2019 TIV forecast at 596.6k units (-0.35% YoY) as we expect sustainable monthly sales volume of 50k units for the remaining 2H19, supported by continued strong demand for new model launches by Proton, Perodua and Toyota. We anticipate upcoming months of Sep-Dec 2019 to revert to positive YoY growths, due to sales slowdown in these months in preceding year as consumer frontloaded purchases during GST exemption period.

We maintain our OVERWEIGHT rating on the sector with a stock selective approach with 5 BUY and 2 HOLD recommendations. Our top picks include DRB (BUY; TP: RM3.50) and BAuto (BUY; TP: RM2.85).

Perodua (UMW and MBMR) sales sustained MoM by +0.7% to 20.1k units in Aug, but a stronger YoY growth of +12.7% due to Myvi production disruption in Aug 2018. YTD sales increased marginally by +1.9% YoY to 161.8k units, outperformed the market of -6.0% YoY, driven mainly by new contribution of Aruz SUV model. Perodua has just launched facelift of Axia model with more variants including an attractive mini-SUV styled variant. It has received pre-launch bookings of 5k units, and management is targeting monthly sales of 6k units.

Proton (DRB) sales continued its uptrend with a MoM growth of +6.3% in Aug, driven by strong demand for newly launched Saga facelift during the month. However, YoY sales were marginally down by 3.9% due to high base as a result of pent up demand during last month of GST exemption period in 2018. YTD sales were at 61.2k units, a significant growth of 37.0% YoY (outperformed market of -6.0%) driven mainly by new model X70 sales volume. We expect Proton to continue its sales momentum, supported by the recent launches of facelifts models (Persona, Iriz, Exora and Saga) and upcoming new line up launches i.e. X70 CKD in 2H19 and X50 in 2020. The new Saga facelift has received over 10k bookings within the first month of launching in Aug.

Honda (DRB) sales at 7.6k units in Aug, indicating sustainable trend with +0.6% MoM. However, it dropped 29.8% YoY and 20.8% YTD (to 59.4k units), due to high base effect as well as competitive new launches by major OEMs namely Toyota, Perodua and Proton. Honda is currently behind its target sales of 95k units for 2019. Honda has opened bookings for its upcoming launch of Civic facelift in Oct. Upcoming new models include Accord and potentially BR-V facelift.

Toyota (UMW) sales continued to lag behind Honda at 5.4k units (-4.3% MoM, -38.4% YoY). YTD sales declined 14.7% to 42.3k units, dragged by production start-up at new Toyota Bukit Raja Plant at the beginning of the year. Similarly, Toyota is currently behind its sales target of 75k units for 2019. Upcoming new model launch include all new Corolla in Oct.

Nissan (TCM) continued to record weak Aug sales at 1.7k units (-14.8% MoM; -51.2% YoY) and YTD sales at 14.1k units (-24.8% YoY). Nissan will maintain its strategy not to compete aggressively with others. Management has indicated new attractive models line up post 2020, including the all new Kicks, Almera and Sylphy.

Mazda (BAuto) sales in Aug sustained +0.1% MoM at 1.0k units, but dropped 48.5% YoY and 13.7% YTD (to 8.5k units) due to high base effect. Mazda has just launched the new Mazda 3 (CBU) with a price tag of RM140-160k and is expecting new launches of CX-5 facelift in Sep and new CX-8 in Oct, while new CX-30 and CX-3 facelift by year end.

Others. BMW (Sime) Aug sales was 0.7k units (-23.7% MoM; -54.5% YoY), dragging YTD sales to 6.6k units (-17.7% YoY). Mercedes (DRB and C&C) posted Aug sales at 0.7k units (-1.1% MoM; -46.9% YoY), while YTD sales were 7.1k units (-28.4% YoY).

Source: Hong Leong Investment Bank Research - 23 Sept 2019