A Seasonally Slow Month

Feb18 Total Industry Volume (TIV) registered at 40.6k units, a 4.4% yoy decline, bringing 2M18 TIV to 85.2k (-2% yoy). Sequentially, Feb18 vehicle sales dropped by 9% mom, attributed to a shorter working month, compounded by Chinese New Year festive holidays. Annualised YTD TIV of 510.9k units is short of ours and MAA’s projections of 603k and 590k respectively. However, we believe the two months’ sales are not reflective of full-year performance, given the lesser working days in February. We maintain our TIV projection - improvement in consumer spending and the Ringgit strength should support 2018 TIV sales, we believe. Maintain NEUTRAL. For exposure, we like Pecca (a beneficiary of strong Perodua Myvi sales) and SIME for its sustainable earnings growth.

Perodua Sales Were Up 3% Yoy

Perodua registered sales of 17.1k units (-3.1% mom, +3.2% yoy), led by strong demand for its new Perodua Myvi and healthy demand for its other models. The strong demand for Perodua’s vehicles lifted its market share to 41% in 2M18 (from 35.4% in 2M17). Perodua has to date delivered 28k units of Myvi (half of the 60k bookings to date). We expect Perodua to achieve higher sales in 2018, in view of the continued demand for Perodua Myvi. Elsewhere, Proton’s sales continued to decline, came in at 3.8k units in Feb18 (-19.8% mom, -36.8% yoy). We expect Proton sales to remain depressed for most of 2018 until the introduction of new models (including rebadged Boyue) in late-2018.

Better Times for Mazda

Majority of the non-national carmakers saw a drop in car sales in Feb18, affected by February seasonality, except for Mazda which saw its sales climbing by 120.4% yoy. Mazda made a strong comeback in Jan17 (sales close to its historical high of 1.3k units post-GST) with its flagship model, the all-new Mazda CX-5 that was launched in Nov17. Elsewhere, Honda’s sales slipped 9% yoy to 7.0k units due to the high-base effect in February 2017. Toyota and Nissan’s car sales also dropped 12.6% yoy and 28.0% yoy respectively, due to the lack of model line-ups.

Maintain NEUTRAL

We maintain our 2018 TIV forecast of 603k units (+4.7% yoy), expecting a recovery in TIV driven by 1) improvement in consumer sentiment, 2) pentup demand following weak sales in 2016-17, and 3) interesting model lineups in 2018. Perodua Myvi, especially the premium model, should remain the star performer for 2018. For exposure, we continue to like Pecca (Pecca MK, BUY: RM1.52), the leading supplier of leather seat covers for Perodua. Large-cap Sime Darby (SIME MK, HOLD: RM3.05) remains our relative preference given its sustainable EPS growth in 2018-19E.

Source: Affin Hwang Research - 21 Mar 2018