Recovery Set to Gain Traction

Total Industry Sales Volume (TIV) in April 2018 rose by 10.2% yoy to 47.1k units on higher demand for passenger vehicles, driven by stronger demand of Perodua car models (+38.7% yoy). Strong Perodua sales momentum will continue to benefit UMWH, MBM and Pecca. Sequentially, TIV was weaker by 5.8% mom as Malaysian consumers were more cautious toward spending on big-item items ahead of the 14th Malaysia General Election on 9 May. With hindsight, this may have been a good move as the removal of GST from 1 June will likely spur car purchases over the near term. Cumulatively, 4M18 TIV of 182.2k units (-0.7% yoy) is within expectations, constituting 30.9% of MAA’s and 31.3% our 2018E forecasts. Sime Darby remains our top large-cap sector pick. Maintain OVERWEIGHT.

Perodua Rises Whereas Proton Remains Weak

Perodua’s April18 TIV rose 38.7% yoy to 19.9k units; 4M18 TIV rose 16.9% yoy to 75.5k units, capturing 41.4% of the total industry market share (4M17: 35.2%). We expect Perodua sales to remain robust, spurred by deliveries of the new Perodua Myvi as well as continued demand for other models. Perodua Myvi’s bookings have surged to over 70k units after the launch in Nov17. Perodua’s newly upgraded Bezza GXtra (launched end April18) should also push Perodua TIV from May18 onwards. In contrast, Proton’s April18 dropped 28.8% yoy to 4k units; 4M18 TIV fell 32.6% yoy to 16.8k units due to lack of new model launches.

Continental Cars Reign; Japanese Cars Ex Mazda Wane

Both BMW and Mercedes-Benz’s 4M18 TIV rose by 12.6% yoy and 18.8% yoy respectively. Cumulatively, the continental car marques’ 4M18 rose by 14.4% yoy to 8.3k units, affirming our belief that the increasingly affluent consumers are ‘trading up’ to more expensive non-national alternatives. However, the Japanese car marques’ 4M18 TIV saw a decline of 9.7% yoy as we believe the mid-range segment was affected by weak consumer spending. Nevertheless, Mazda (BAuto) was a winner amongst the Japanese car marques – 4M18’S TIV surged 48.7% yoy, driven by higher demand from its new Mazda CX-5 model.

Maintain OVERWEIGHT

Our 2018 TIV forecast remains unchanged at 582.4k units (+1 yoy). We believe the sector’s outlook will be better in the coming quarters on 1) a temporary boost from the cheaper zero-rated GST car prices, 2) strong pick-up in consumer spending, 3) aggressive models, and 4) sustained strength of the RM. Large-cap Sime Darby (SIME MK, RM2.69, BUY) and small-cap: BAuto (BAUTO MK, RM2.27, BUY) and MBMR (MBM MK, RM2.35, BUY) remain our relative preferences within our coverage.

Source: Affin Hwang Research - 24 May 2018