October 2018 Total Industry Volume (TIV) came in at 47.3k units (+0.5% yoy, +51.3% mom). Oct 18-car sales, in our view, began to normalise and most brands have shown a stellar recovery since the sales slump experienced in Sept 18. Overall, the automotive industry recorded sales of 502.2k (+6.2% yoy) in 10M18 and we think that the typical year-end sales campaigns may lift 4Q18 numbers. Therefore, we raise our 2018 TIV assumption to 594k units (previous forecast at 582.4k units), incorporating higher sales from Perodua and Nissan but lower sales from Proton. Maintain OVERWEIGHT on the sector.

Perodua Back in Stride; Proton Crawls

Perodua sold 19.5k units in Oct 18, a twofold increase compared to Sept 18, making a comeback after fulfilling the 22k Perodua Myvi order backlog, which was affected by a production disruption over Aug-Sept 18. With the Perodua Myvi production returning to normalcy, we believe sales of Malaysia’s best-selling car brand for 10M18 of 187.7k units (+11.7% yoy) is likely to exceed Perodua’s full-year 2018 target of 209k units. Meanwhile, Proton clocked in 5.1k units in Oct 18 (+0.2% yoy, +12.6% mom) as buyers were attracted to the zero-SST pricing for Proton car models. Despite the strong bookings for Proton’s maiden SUV model (X70), coupled with year-end promotion and rebates, we think 2018 will likely see the sixth year of decline for Proton car sales, considering Proton’s 10M18 only achieved 54.3k units (~77% of 2017’s car sales of 70.4k).

Non-national Brands Still Leading the Market at 51.8%

The non-national carmakers continued to lead the Malaysian auto arena for the fifth month since the implementation of the zero-rated goods and services tax period – 10M18-market share at 51.8%. Most non-nationals experienced double-digit growth on a monthly basis except for BMW/Mini, which declined by 9.6% mom to 1.0k units. On a brighter note, Mazda remained as the star performer for the fourth consecutive month, achieving a historical sales high of 1.7k units in Oct 18 (excluding the tax holiday month high in Aug 18 of 1.9k), driven by continued demand for its flagship model, the CX-5, and facelifted models (CX-3 and M6). We believe Mazda’s sales momentum will remain robust, considering the order backlog of 5k units. All in, 10M18 car sales for the European makes outpaced those of Japanese brands (+14% and +2.4% respectively).

Maintain OVERWEIGHT

We maintain OVERWEIGHT on the sector, expecting sector earnings to recover amidst top-line growth and the sustained strength of the Ringgit. In terms of sector picks, we prefer Toyota (UMWH MK), Mazda (BAUTO MK) and Perodua (UMWH MK/MBM MK).

Source: Affin Hwang Research - 21 Nov 2018