September 2018 Total Industry Volume (TIV) recorded lower sales at 31k units (-24% yoy, -52% mom), an expected correction after the overwhelming strong sales during the zero-rated goods and services tax (GST) period between June-August 2018. Advanced purchases and exhausted car stocks are among the factors that will likely discourage consumers from buying new vehicles in 4Q18, we believe. Therefore, 9M18 TIV of 455k units (+7% yoy) is within expectations, accounting for 78% of our full-year TIV forecast. Maintain OVERWEIGHT.

National Car Sales Lags

Proton’s Sept 18 car sales came in at 4.5k units (+1% yoy, -52% mom); 9M18-market share fell to 10.8% (9M18 at 13.2%). Proton’s depleted sales were in line with the weaker industry performance, as consumers shied away from big-ticket items with the reimplementation of the sales and services tax (SST). Meanwhile, Perodua was among the hardest hit by the sluggish month; sales fell to 9.5k units (-34% yoy, -47% mom; affected by a technical glitch at one of its vendors) – although it still led the market. We think the drop is temporary and expect Perodua’s production glitches to be addressed by end-2018; for Proton, the flagship SUV (X70) should drive future sales (X70 has received >8k units pre-orders since Sept 18).

Non-national’s 9M18 Market Share of 52%

The non-national carmakers also suffered a similar plunge in sales, dropping 22% yoy to 17.3k units during Sept 18. Despite that fact, the nonnational’s 9M18-market share stayed strong at 52% (vs. 8M18 of 52%). While the rest of the foreign players suffered a yoy decline, Mazda was the star performer for the third consecutive month – clocking in sales volume of 1.2k units (+65% yoy, -38% mom), thanks to the continued demand for its flagship model, the CX-5, and facelifted models (CX-3 and M6). We think Mazda sales will remain healthy for the next few quarters, considering the strong order backlog of 8k units. On the premium side, BMW’s Sept 18 car sales grew 4% yoy to 1.1k units. All in, the Japanese and Continental 9M18-car sales grew 4% and 17% yoy respectively.

Maintain OVERWEIGHT

We retain our 2018 TIV forecast of 582.4k units (+1% yoy), as we expect softer sales volume moving into 4Q18, taking the view that most consumers took advantage of the cheaper car prices during the threemonth tax-holiday period. Nevertheless, we reiterate our Overweight stance, expecting sector earnings to recover amidst top-line growth and the sustained strength of the Ringgit. In terms of sector picks, we favour auto players with growing market share: BMW (SIME MK), Mazda (BAUTO MK) and Perodua (MBM MK).

Source: Affin Hwang Research - 17 Oct 2018