Jan20 Total Industry Volume (TIV) declined by 10% yoy to 42.7k units, dragged by weaker sales across the board, except Proton and Toyota. Meanwhile, the 21% mom decline was expected, attributed to a shorter working month, in conjunction with the Lunar New Year festive holidays. Moving ahead, we expect car sales momentum to moderate in the coming months, owing to the soft economic climate amid the Covid-19 outbreak and political uncertainty. Therefore, we cut our 2020 TIV assumption to 583k units (-3.5% yoy) (previous forecast at 590k units). Maintain NEUTRAL on the sector.

Perodua Leads the Pack and Proton Closing in

Proton was the star performer for Jan20 – car sales volume rose by 24% yoy to 8.5k units, spurred by higher demand for the updated 2019 models, namely the Saga, Iriz, Persona and Exora. The stronger January performance saw its 1M20 market share rise to 19.9%, its highest since Mar14 at 20.9%. Based on an NST article, Proton’s sales momentum remained strong in February despite the shrinking TIV; the Proton CKD X70 version has garnered over 7k bookings since its launch in Feb20. Meanwhile, we were surprised that Perodua car sales volume declined to 17.5k units (-13% yoy, -5% mom) on weaker demand over its model line-up: passenger vehicles (-9% yoy), MPV (-69% yoy), and SUV (-12% yoy) accordingly. Despite the weaker performance, Perodua remains the envy of its peers as it continues to retain its leadership in the industry, with a 41% 1M20 market share (1M19: 42.3%). More importantly, both national makes’ 1M20 combined market share soared to almost an 8-year high of 60.9% (2M12 at 60.1%).

Tough Times for the Non-national Cars

Most Japanese marques saw a slump in 1M20 sales volume – Honda (-19.4% yoy), Nissan (-45.9% yoy) and Mazda (-31.5% yoy; current backlog at est. 1.3k units), except for Toyota (+16% yoy on low base effect). We believe the down-trading trend is gaining pace in the domestic automotive market, where sales of cheaper national brands with refreshed line-ups have continuously outpaced the pricier Japanese cars. Elsewhere, it was reported that the luxury brands are also facing difficult times, having to store their excess vehicles in rented yard space due to the soft economic climate. Evidently, Mercedes-Benz 1M20 sales plunged to merely 645 units (-39% yoy), its lowest sales volume levels on par with the Sept18 volumes post the tax free period between June-Aug19. We are not able to ascertain the performance for BMW/MINI as BMW Malaysia SB announced it would only disclose its sales volume on a quarterly basis moving forward.

Maintain NEUTRAL, Top Pick/ Key Risks

We maintain our NEUTRAL rating on the auto sector. Our sector top pick is MBM Resources for its appealing valuation. Key risks to our sector call include: 1) higher-/lower-than-expected car sales volumes, 2) looser- /tighter bank lending policy, 3) intensifying price competition; 4) fluctuation of the RM vs. US$/JPY, 4) delays on new car pricing approvals, and 5) better-/worse-than-expected economic slowdown that affects market sentiment.

Source: Affin Hwang Research - 3 Mar 2020