April’s total industry volume (TIV) weakened 20% mom to 42.7k units on a higher base as dealerships had rushed to complete deliveries for their year-end closing during March. Vehicle sales reached 183.6k units YTD representing a decent growth of 6% yoy. We expect sales volumes to improve in the upcoming months boosted by promotional campaigns for Hari Raya. We maintain our NEUTRAL sector rating.

Lower Gear in April

According to the Malaysian Automotive Association (MAA), April’s auto sales contracted 20% mom to 42.7k units. This was due to the lower sales across all brands as buyers continued to spend cautiously coupled with the high base in March as dealerships had rushed to complete their deliveries. Besides that, changes in the SUV/4x4 excise duty also played a role in the weaker sales in April. Perodua continues to dominate with a market share of 35.2%, followed by Honda and Proton at 18.8% and 13.6% respectively.

Local Car Makers on Track

YTD Proton sales grew 5.5% yoy to 25k units as compared to 23.7k units in 4M16. Meanwhile, Perodua registered a growth of 4.1% to 64.6k units driven by the new facelifted Perodua Axia in January 2017, the recent update of Perodua Bezza and attractive promotions for other models. Perodua is on track to achieve its 2017 sales target of 202k units, in our view.

Foreign Brands Not Troubled

Both Honda and Toyota reported unit sales of 7.3k and 5.9k in April, which declined by 33.8% and 5.3% mom respectively. YTD, Honda and Toyota registered 39.7% and 53.6% growth yoy. Honda continues to see strong demand as it rides on the introduction of the new facelifted Honda City model and also the debut of the Honda BR-V model in early January. The new facelift of Honda Jazz, which has already open for booking starting early May will likely to further reinforce Honda’s current market share.

Maintain NEUTRAL

Our 2017 TIV forecast remains unchanged at 592k units (+2.0% yoy). Overall, we see the encouraging bounce back in TIV numbers as sustainable. Our in-house view is premised on the recovery in the MYR as we expect local currency to stabilise in 2H17, spurring consumer spending. However, headwinds such as stricter auto financing still poses challenges for the sector. We maintain our NEUTRAL call on the sector. UMWH and MBM are a HOLD, while APM has been downgraded to a SELL.

Key Risks

Upside risks include: i) minimal compression in the profit margins; and ii) unexpectedly strong TIV sales. Key downside risks include: i) disruption in the supply chain; ii) prolonged tightening of auto financing hindering the borrowing ability of car buyers; iii) exchange rate risk; and iv) slowdown in the economy.

Source: Affin Hwang Research - 23 May 2017