An Unexciting Finale

Total Industry Volume (TIV) in Dec17 clocked in at 54.7k (+11.3% mom, -15.6% yoy). The stronger monthly sales (vs Nov17) were driven by year-end promotions and clearance sales. However, Dec17 sales were down 15.6% yoy due to: 1) floods in the east coast of Peninsular Malaysia, and 2) the year-end promotional campaigns starting much earlier in 2017 as car makers raced to meet year-end sales targets. Overall, the 2017 TIV of 576.6k (-0.6% yoy) was marginally short of expectations (97-98% of MAA’s and our full-year projections). We maintain our 2018 TIV sales growth assumption of 4.7% yoy, given a whole raft of exciting new models to be launched in 2018. We maintain our NEUTRAL sector rating. Sime Darby (HOLD) remains our automobile sector top pick for its business/geographical diversification and relatively steady profile.

National Cars Losing Steam

Perodua registered sales of 20.2k units (+21% mom, -18% yoy) in Dec17, bringing cumulative 2017 sales to 204.9k units (-1% yoy). We remain optimistic on Perodua, expecting its sales to accelerate in 2018, driven by the new MyVi that was launched in 4Q17 and has garnered over 28k bookings, of which only 8k have been delivered as of Dec17. Proton, on the other hand, only managed to sell 4.8k units in Dec17 (-0.2% mom, -34% yoy), pushing cumulative 2017 sales to 71.0k (-2% yoy). Despite attractive year-end promotions, Proton dealers were unable to increase their sales due to stiff competition and bland car models.

Honda Holds on to Non-national Auto Crown

Honda sales expanded to 11.2k units in December (+7% mom, -2% yoy). The marque retained its number one spot among non-national brands for the third consecutive year, selling 109.5k units in 2017 (+19% yoy) and capturing 19% of the overall market share (16% in 2016). Similarly, Toyota recorded healthy sales of 7.3k units in December (+7% mom, -3% qoq), taking its 2017 total to 70.5k units (+8% yoy). Toyota’s new model line-up (CH-R, Rush, Camry, Harrier, Vios) in 2018 should attract market interest but their relatively high price points may weigh on demand. Mazda and Nissan’s 2017 sales continued to drop by 22% yoy and 33% yoy respectively due to the lack of new model launches.

Maintain NEUTRAL

We reiterate our NEUTRAL rating on the auto sector. We project a 4.7% yoy TIV growth in 2018, in view of: 1) likely improved consumer sentiment, 2) pent-up demand following weak sales in 2016-17, and 3) a string of new model launches in 2018. Tight auto loan financing remains the biggest challenge for the sector, with no sign of easing at this juncture. For exposure, Sime Darby (SIME MK, RM2.90, HOLD) and MBMR (MBM MK, RM2.40, HOLD) are our relative preferences for their likely sustainable EPS growth in 2018-19.

Key Risks

Upside risks to our Neutral rating include: i) lower-than-expected 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 - 24 Jan 2018