Total Industry Volume (TIV) in Nov17 came in at 49.2k (+4.6% mom, +0.2% yoy). The higher sales was attributable to attractive year-end promotions from car manufacturers. YTD TIV of 521.9k (+1.3%) is within expectations, constituting 88%-89% of ours and MAA’s forecast. We maintain our 2017E TIV sales assumption as we expect a seasonal sales spike in Dec with the launch of the new MyVi as well as year-end festive promotions. Maintain NEUTRAL on the sector. Sime Darby is our highest rated stock in the sector.

New Perodua MyVi Takes the Lead

Perodua recorded sales of 16.6k units (+0.9% mom, +7.7% yoy), pushing cumulative 11M17 sales to 184.7k units (+1.2% yoy). We expect its sales to pick up further as Perodua’s newest MyVi has been getting a flood of attention, with bookings surging to over 20,000 cars after the launch. Besides receiving good reviews by popular automotive websites, it was awarded a five-star safety rating from the New Car Assessment Program for Southeast Asian Countries. In contrast, Proton registered weak November sales of 4.8k units (-5.4% mom, -34.4% yoy); 11M17 sales of 66.2k units (+1.7% yoy). We understand that Proton dealers are currently struggling to sell more cars due to stiff competition and stringent hirepurchase loan approvals.

Honda on a Winning Streak

Honda sales grew substantially to 10.5k units in November (+15.6% mom, +17.7% yoy) and Toyota also recorded better sales of 6.9k units in November (+9.2% mom, +5.3% yoy). In terms of 11M17 sales, both brands continued to see improvement in sales with Honda’s sales at 98.3k units (+22.3% yoy) and Toyota’s at 63.1k units (+9.6% yoy), riding on the weakness of its peers (mainly Mazda and Nissan). Both Mazda and Nissan’s 11M17 sales dipped 24.1% and 30.7% respectively due to lack of new model launches. Honda is less than 2% away from reaching its 2017 car sales target of 100k units, thanks to primary movers like the BRV, facelifted City, facelifted Jazz, new CR-V, and City Hybrid. Honda retained its No.1 position in the non-national segment with market share at 18.8% in 11M17 (record of 20.5% during Mar17).

Maintain NEUTRAL

We have recently upgraded the auto sector rating to Neutral (see our strategy outlook report, 2018 Outlook: Ripe for a re-rating (15 December 2017) - we expect sales momentum to remain robust, supported by new model launches and year-end promotional campaigns. Large-cap Sime Darby (SIME MK, RM2.05, BUY) and small-cap MBMR (MBM MK, RM2.17, HOLD), for its EPS growth in 2018E, remain our relative preferences within our coverage.

Key Risks

Upside risks to our 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 - 20 Dec 2017