May-be a Blip, Better Outlook Ahead

May 2018 Total Industry Volume (TIV) dropped to 43k units (-9% mom, -15% yoy) due to a wait and see stance in anticipation of the zero-rated goods and services tax (GST) from June to August 2018. Yet, sales of selected car marques (Perodua, Proton, Honda and Nissan) improved sequentially thanks to the introduction of ‘price protection scheme’, which protects customers against car price fluctuations. We believe this blip is temporary as we are expecting a boost in TIV, driven by the cheaper car prices (over June to August), stronger consumer spending, a firmer Ringgit and exciting model launches. Reiterate OVERWEIGHT on the sector.

May TIV Was Cushioned by Higher Perodua Sales

Perodua’s May18 TIV climbed 28% yoy to 22k units; 5M18 TIV rose 19% to 97k units. The strong demand for Perodua car models (especially the new Perodua Myvi launched in Nov17) elevated its 5M18 market share to 43%, a record high (5M17: 35%). Nevertheless, we think this level is unlikely to be sustainable for Perodua as other brands race to sell more cars during this golden period, we opine. On the other hand, Proton should benefit from this season as it has sufficient stock to cater to the spike in demand. Proton’s May18 TIV improved marginally by 2% to 4.1k units, lifting its local market share to 9.5% (April18: 8.5%).

Continental Cars Leading in 5M18 TIV; BMW and Mazda Prosper

The Continental car marques’ 5M18 rose marginally by 3% to 9.6k units on higher demand for BMW and Mercedes-Benz’ cars. Both BMW and Mercedes’ 5M18 increased by 2% yoy and 8% yoy respectively. Meanwhile, the Japanese marques performed poorly, except for Mazda. Mazda’s 5M18 was up by 30.5% yoy, driven by the strong demand for the new Mazda CX-5 model. Sequentially, the price protection scheme lifted sales for Honda and Nissan by 4% and 5% whereas Toyota and Mazda (no price protection scheme) suffered a drop in sales by 64% and 45% respectively.

Maintain OVERWEIGHT

Our 2018 TIV forecast remains unchanged at 582.4k units (+1% yoy). Our forecast reflects a recovery in TIV as we expect sales momentum to remain robust, premised on the 1) improvement in consumer sentiment, 2) pent-up demand following weak sales in 2016-17, and 3) a string of new model launches in 2018. Maintain Overweight on the sector. For exposure, Bermaz and MBM remain our preferred pick, riding on Mazda and Perodua’s strong product pipeline.

Key Risks

Downside risks could come from: i) weaker-than-expected TIV sales, ii) further tightening of auto financing, and iii) a slowdown in the economy.

Source: Affin Hwang Research - 22 Jun 2018