MAA reported Feb TIV at 40.4k units (+1.4% YoY; -5.3% MoM) and YTD TIV at 83.1k units (-5.9% YoY) mainly affected by weakened consumer sentiment and Perodua production disruption. We have excluded BMW, Mini, Mercedes and Scania sales (historically combined sales volume of 1,500-2,500 units per month) for fair comparison purpose. Important to note that both national marques Perodua and Proton outperformed market TIV substantially with record high combined market share of 71.5%, while Honda sales was affected by new regulatory costing issues. We have recently cut our 2020 TIV expectation to 555.9k units (-8.0% YoY), due to negative impact from Covid-19 and deteriorating consumer sentiment. We maintain OVERWEIGHT on automotive sector on selective stock approach, with top picks of MBMR (BUY; TP: RM4.80), Pecca (BUY; TP: RM1.05) and Sime Darby (BUY; TP: RM2.00).

Malaysian Automotive Association (MAA) reported Feb 2020 TIV at 40.4k units, marginally up +1.4% YoY (on longer working days), but dropped 5.3% MoM following concerns on Covid-19. YTD, TIV dropped by 5.9% YoY to 83.1k units. Note that we have excluded BMW, Mini, Mercedes and Scania (historically combined monthly sales of 1,500-2,500 units) from our calculations as these marques will only provide quarterly statistics in 2020 onwards. We have recently cut our 2020 TIV forecast to 555.9k units (-8.0% YoY) as we expect negative impact from consumer sentiment due to the outbreak of Covid-19 (government has implemented Movement Control Order for 2 weeks until 31 March 2020) and weakening RM outlook.

We maintain our OVERWEIGHT rating on the sector with a stock selective approach with 4 BUY, 2 HOLD and 1 SELL recommendations. Our top picks include MBMR (BUY; TP: RM4.80) and Pecca (BUY; TP: RM1.05) for their high net cash position and leverage to national marques as well as Sime Darby (BUY; TP: RM2.00) for its strong balance sheet and potential leverage to the China market rebound.

Perodua (UMW and MBMR) registered a commendable sales volume of 18.9k units in Feb (+9.5% YoY; +8.1% MoM) with a historical high market share of 46.8%, outperformed market TIV. The sales were attributed to new launch of Bezza facelift in Jan as well as normalization of Myvi and Aruz production by late Feb. The group is targeting flattish sales of 240k units for 2020, driven mainly by recent launches of Axia facelift (Sep 2019) and Bezza facelift (Jan 2020), as well as upcoming D55L SUV unit (2H20).

Proton (DRB) continued its growth momentum with sales volume of 10.0k units in Feb (+88.8% YoY, +27.3% MoM), due sustaining high demand for its existing models line up (Persona, Iriz, Saga and Exora) as well as newly launched X70 CKD. The marque achieved its highest ever market share of 24.7% since its restructuring exercise in 2017. Management is targeting 130k unit sales in 2020. Upcoming new line up launch is the highly anticipated X50 CKD in 2H20.

Honda (DRB) sales volume declined substantially to only 1.8k units (-70.7% YoY; -71.0% MoM) worse than market TIV. We believe the weak sales were dragged by new regulatory costing issues (new excise duty calculations). Subsequently, Honda announced price hikes across the board by 5-9% effective Feb 21, raising concern on the negative effect on its upcoming sales volume. Nevertheless, the recent launches of new Accord and Civic facelift as well as upcoming BR-V facelift, new City and Jazz should mitigate the negative effect.

Toyota (UMW) continued registering disappointing sales volume of 4.0k units (-14.9% YoY; +9.4% MoM) in Feb, unable to take full advantage of the weakness of major competitor Honda during the month. We expect Toyota to face stiff competition for the remaining 2020 following the expected attractive launches by close competitors during the year. With Toyota maintaining its selling prices, it may face further margin pressure in 2020 with the depreciating RM.

Nissan (TCM) continued to record weak Feb sales at 1.0k units (-5.7% YoY; -23.8% MoM) due to its lack of attractive new model launches. Nissan will maintain its strategy of not competing aggressively with others. Management has indicated upcoming new Almera is due to launch in 2H20 while the new Kicks and Sylphy may only come post 2020. Similarly, Nissan is expected to be affected by RM depreciation.

Mazda (BAuto) sales overtook Nissan at 1.1k units (+58.3% YoY; +0.2% MoM) in Feb, following launch of new CX-30 in Jan. Mazda has just launched Mazda 2 facelift and updated CX-9 to continue provide model variations to Malaysia market. Upcoming expected new launch is MX-30 SUV in 2H20.

Source: Hong Leong Investment Bank Research - 31 Mar 2020