Total Industry Volume (TIV) saw a 27% yoy jump to 65.6k units in August 2018. With consumers taking advantage of cheaper cars on the final month of the zero-rated goods and services tax (GST), most passenger car players experienced stellar growth – with the exception of Perodua (-4% yoy) and Nissan (-1% yoy). Moving into 4Q18, we expect the TIV to soften given the end of the tax-holiday period. Consumers may also hold back on purchases because of the uncertainty in car prices with the new sales and service tax (SST). The 8M18 TIV of 423.7k units (+10% yoy) is within expectation, accounting for 73% of our full-year forecast. Maintain OVERWEIGHT.

Local Players Grew Bigger by 13% Yoy

Proton’s car sales rose to 9.5k units (+47% yoy, +17% mom) in August, and its 8M18 market share stood at 10.6% (8M17 at 13.5%). Proton’s improved sales, in tandem with the better performance of most auto players, were primarily fuelled by cheaper car prices during the zero-rated GST period. On the contrary, Perodua’s August sales volume fell to 17.8k units (-4% yoy, -25% mom) due to the temporary production disruption for the Perodua Myvi (~3k units affected by vendor issues). As such, the 8M18 market share of the national carmakers fell to 48.0% (from 8M17 of 49.1%). We think the dip is temporary as both players will be taking turns to roll out exciting model launches: Perodua Alza facelift, new Proton X70 and possibly an update for the Proton Iriz.

Non-national Carmakers Remain Strong; 8M18 Market Share of 52%

The non-national carmakers had plenty to celebrate during August – their 8M18 market share climbed to 52% (vs. 7M18 of 51%). Among the Japanese carmakers, Mazda was the star performer for the second time this year, with the August sales volume achieving a monthly record high of 1.9k units (+143% yoy, +62.3% mom). We believe Mazda’s sales momentum will remain strong for the next two quarters, considering its solid bookings of 8k units (75% of the bookings are for CX-5). On the premium side, Mercedez-Benz continued to lead with 1.4k units sold, up 12% yoy. Meanwhile, BMW’s car sales accelerated by 56% yoy to 1.6k units in August. All in, the 8M18 premium car sales grew 22% yoy. Japanese car sales increased 8% yoy in 8M18.

Maintain OVERWEIGHT

We retain our 2018 TIV forecast of 582.4k units (+1% yoy), as we expect softer sales volume moving in 4Q18 on car pricing uncertainties from the implementation of the SST. We favour players with growing market share: BMW (SIME MK), Mazda (BAUTO MK) and Perodua (MBM MK).

Key Risks

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 - 21 Sept 2018