July 2018 Total Industry Volume (TIV) accelerated to 68k units (+41% yoy, +6% mom), its second highest monthly volume in history (Dec 2015 hit a record high of 69k units). Similar to June and July, we believe August TIV will remain robust as the zero-rated Goods and Services Tax (GST) period continues to draw consumers to take advantage of cheaper car prices. Despite the year-end promotion offered by respective car companies, we expect sales volume to soften in 4Q18 as consumers will briefly hold back on big-ticket purchases following a hike in car prices. Hence, 7M18 TIV of 358k (+8% yoy) is within expectations, accounting for 62% of our 2018E forecasts. Maintain OVERWEIGHT.

Demand for Local Cars Remain Strong

Riding on the joyful tax holiday promotions, Proton car sales increased to 8k units (+36% yoy, +31% mom), its highest car sales volume for the last 30 months. Similarly, Perodua’s July sales volume rose to 24k units (+26% yoy, +22% mom), spurred by the popular demand for Perodua Myvi and other key models. This has driven Perodua’s 7M18 car sales to 141k units – up 19% yoy. However, Perodua’s 7M18 market share dipped to 39.3% (from 5M18 record high of 43.3%) as other car companies raced to capitalise on the tax holiday period.

Non-national Carmakers Taking the Lead; 7M18 Market Share of 51%

Likewise, the non-national carmakers’ July car sales rally continued to ride on the cheaper zero-rated GST car prices. Among the Japanese car marques, Mazda was the star performer in July 2018 – car sales rose by 71% to 1.2k units, with 7M18 market share of 2.2% (7M17 market share: 1.6%). We expect demand for Mazda cars to remain strong as Bermaz Auto, the official Mazda distributor, reaffirms its commitment to absorb the Sales and Service tax (SST) for bookings made before Sept 1. Over in the premium market, Mercedez-Benz’ July car sales rose 2x to 1.6k units, which enabled it to secure 2.4% share of the market (7M17 market share: 2.0%).

Maintain OVERWEIGHT

Our 2018 TIV forecast remains unchanged at 582.4k units (+1% yoy), as we expect the sector to benefit from the temporary boost from the cheaper zerorated GST car prices and partly offset by the softer sales volume during 4Q18 (implementation of SST). Our sector picks are: BMW (SIME MK, RM2.59, BUY), Mazda (BAUTO MK, RM2.12, BUY) and Perodua (MBM MK, RM2.38, BUY) (PECCA MK, RM0.96, BUY).

Source: Affin Hwang Research - 20 Aug 2018