MAA reported weaker Jan TIV at 42.7k units (-10.4% YoY; -21.5% MoM), mainly dragged by weakened consumer sentiment and Perodua production disruption. We have excluded both BMW and SCANIA sales (historically combined sales volume of 500-1,000 units per month) for fair comparison purpose. We see downside risk towards our 2020 TIV expectation at 605.0k units (+0.12% YoY), given the weakening consumer sentiment. We maintain OVERWEIGHT on automotive sector on selective stock approach, with top picks of DRB (BUY; TP: RM3.50) and MBMR (BUY; TP: RM5.50).

Malaysian Automotive Association (MAA) reported a weak Jan 2020 TIV at 42.7k units, a drop of 10.4% YoY mainly due to weakened consumer sentiment and Perodua’s production disruption in Jan 2020. On the 21.5% MoM drop, this was mainly due to end of year-end sales program, coupled with Perodua’s production disruption in Jan 2020. Note that we have excluded both BMW and Scania (historically combined monthly sales of 500-1000 units) from our calculations as both marques will only provide quarterly statistics in 2020 onwards. Nevertheless, we see potential downside risk to our 2020 TIV forecast at 605.0k units (+0.12% YoY) as we expect negative impact from consumer sentiment due to the outbreak of Covid-19 and the on-going domestic political uncertainty as well as weakening RM/USD outlook.

We maintain our OVERWEIGHT rating on the sector with a stock selective approach with 5 BUY, 1 HOLD and 1 SELL recommendations. Our top picks include DRB (BUY; TP: RM3.50) and MBMR (BUY; TP: RM5.50).

Perodua (UMW and MBMR) registered sales volume of 17.5k units in Jan (-13.1% YoY; -4.8% MoM), mainly dragged by production disruption during the month. Nevertheless, Perodua is being cautious and expecting a competitive year 2020, particularly a challenging first half. The group is targeting a flattish sales of 240k units for 2020, driven mainly by recent launches of Axia facelift (Spe 2019) and Bezza facelift (Jan 2020), as well as upcoming D55L SUV unit (2H20).

Proton (DRB) continued its growth momentum with sales volume of 8.5k units in Jan (+24.0% YoY), driven mainly by stronger demand for its updated passenger cars (Saga, Iriz and Persona), but declined 23.5% MoM due to end of year-end sales campaigns and phase off of X70 CBU model, prior to the launch of new X70 CKD model in Feb. Management revealed that Proton achieved 10k sales in Feb (+10.3% YoY; +17.3% MoM), despite a traditionally weaker industry demand for the month. Management is targeting 130k unit sales in 2019. Upcoming new line up launch is the highly anticipated X50 CKD in 2H20.

Honda (DRB) sales volume declined to 6.1k units (-19.4% YoY; -16.2% MoM) in tandem with the market. Honda has recently hiked its car prices by 5-9% effective Feb 21, which will affect its sales volume in 2020. Nevertheless, the recent launches of new Accord and Civic facelift as well as upcoming new City and Jazz may negate the negative effect.

Toyota (UMW) registered disappointing sales volume of only 3.6k units, plunged 54.7% MoM, following end of year-end sales campaign. The growth 16.4% YoY was mainly due to low base effect in Jan 2019 following the commencement of its new Bukit Raja plant for new Vios. Toyota is expected to face stiff competition in 2020 following the expected several launches by close competitors during the year. Nevertheless, Toyota has the upper hand in not raising its car prices.

Nissan (TCM) continued to record weak Jan sales at 1.4k units (-31.7% YoY; -35.5% MoM) due to its lack of attractive new model launches. 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 Jan improved 22.1% MoM to 1.1k units, following launch of new launch of CX-30 facelift. However, sales declined 31.5% YoY due to high base effect of sales delivery of CX-5 post GST free period. Mazda has just launched Mazda 2 facelift at RM104k sales price, a considerably high price as compared to peers. Upcoming expected new launch is MX-30 SUV in 2H20.

Source: Hong Leong Investment Bank Research - 3 Mar 2020