MAA reported August auto sales of 51.7k units, which grew 6.5% mom, boosted by promotional campaigns coupled with the fulfilment of back orders as the e-registration system was back on track. YTD auto sales grew 3.9% yoy to 384.7k units. We keep our 2017E TIV sales assumption unchanged at 592k units (+2.0% yoy). Maintain UNDERWEIGHT on the sector.

Perodua Continues to Outshine Proton But the Latter Gaining Ground

Proton registered sales of 6.5k units (+8.4% mom, +45.4% yoy) in the month of August, bringing cumulative 8M17 sales to 51.8k units, which represents a 17.6% yoy increase. Proton’s market share grew from 11.9% in 8M16 to 13.5% in 8M17. Perodua recorded Aug sales of 18.6k units (-1.5% mom, -12.3% yoy), bringing cumulative 8M17 sales to 137.2k units (+2.6% yoy) driven by strong demand for its 2 best-selling models, Axia introduced in January 2017 and Bezza on April 2017. However, Perodua’s market share declined slightly to 35.7% in 8M17 (36.1% for 8M16).

Honda and Toyota Sales Grew 13.5% and 3% Mom

Toyota recorded sales of 5.8k units in August (+3.0% mom, -13.3% yoy). Toyota’s sales continued to be overshadowed by Honda, which saw August sales of 9.7k units (+13.5% mom, +17.5% yoy). Nevertheless, both marques have seen strong sales improvement over 2016, albeit from a low base – Toyota’s 8M17 sales at 45.5k units (+14.8% yoy) and Honda’s 8M17 sales at 70.8k units (+27.0% yoy). Honda’s 2017 car sales target of 100k units should be within reach, supported by the well-received new models – the new BRV (Jan 2017), facelifted City (March 2017), facelifted Jazz (June 2017), new CR-V (July 2017), and City Hybrid (July 2017). Meanwhile, Toyota is targeting to release its all-new C-HR SUV in 1Q18.

Maintain UNDERWEIGHT

8M17 TIV sales volume has achieved 67% of our 2017E TIV sales of 592k. We believe 2H17 momentum will likely remain strong, supported by new model launches in the pipeline and year-end promotional campaigns. We maintain UNDERWEIGHT on the sector with SELLs on both UMW and APM. For sector exposure, we prefer MBM Resources.

Key Risks

Upside risks to our Underweight call and stocks include: i) minimal compression in profit margins; and ii) unexpectedly strong TIV sales. Downside risks could come from: i) a prolonged tightening of auto financing hindering the borrowing ability of car buyers; ii) exchange rate risk; and iii) a slowdown in the economy.

Source: Affin Hwang Research - 21 Sept 2017