Total Industry Volume (TIV) in May19 rose to 60.8k units (+41% yoy, +22% mom) from the low base effect in May18 as consumers were cautious on discretionary spending during the election month. The stronger car demand was also driven by the Hari Raya promotional campaigns by various car brands as well as new model launches. Moving into 3Q19, we expect sales volume to be weaker yoy on a high base effect as demand was robust during the tax holiday boost between June and August 2018. As such, the 5M19 TIV of 253.8k units (+13% yoy) is within expectations, constituting 42% of our 2019E forecast. Maintain Overweight.

Perodua Leads and Proton Solidifies 2nd Position in the Standings

Proton’s May19 Sales Volume More Than Doubled to 10.6k Units (+21.6% mom) compared to May18 sales, notably its highest monthly sales volume in 46 months (close to Jul15 high: 10.8k units). Proton’s strong performance was driven by higher deliveries for the Proton X70 as well as the face-lifted Iriz and Persona that were launched in April19. In addition, Perodua sold 22.9k units (+4% yoy, +4% mom) in May19, led by healthy demand for its new Perodua Aruz and existing line-ups. Perodua has to date delivered 52% of the 25k bookings received for Aruz since the launch in Jan19.

Major Non-national Brands’ Sales Soared (ex-Mazda)

In May19, most non-national carmakers recorded higher sales volume on a monthly basis, except for Mazda where sales declined by 19% mom to 1.1k units. Notwithstanding the 1.5k backlog orders, we think Mazda sales may soften in the coming months, considering the CX-5 model life cycle gradually matures and new SUV model launches from other carmakers. Elsewhere, Honda was the star performer among the Japanese brands in May19 – registering sales volume of 10.5k units (+31% yoy, +70% mom) as the temporary supply disruption of the Honda Civic has been resolved, we believe. Meanwhile, the European brand’s 5M19 sales volume grew marginally by 1% yoy to 9.6k units on higher BMW/MINI sales (+7% yoy) but offset by lower Mercedes-Benz sales (-4% yoy). Overall, the non-national brand’s 5M19 market share stood at 44.2% (5M18: 47.4%)

Maintain OVERWEIGHT; Top Picks/ Key Risks

Maintain OVERWEIGHT. Our sector top picks are Bermaz Auto (BAUTO MK) and MBM Resources (MBM MK). Downside risks could come from: i) a prolonged tightening of auto financing; ii) exchange rate risk; (iii) delay in car pricing approvals, and iv) a slowdown in the economy. Key event to watch out for is the upcoming National Automotive Policy 2019.

Source: Affin Hwang Research - 24 Jun 2019