Journey to Wealth

Automotive - Encouraging TIV Growth

kiasutrader
Publish date: Wed, 21 Nov 2012, 10:37 AM

October TIV came in strong at 55,358 units, higher by 3.3% y-o-y, 20.7% m-o-m and  2% YTD. The auto industry is on track to hit our TIV growth target of 2.5% for 2012.  Perodua  and  Toyota  reported  disappointing  numbers  for  the  month  '  the  former  due  to  tighter  lending  guidelines  hitting  Viva  sales  while  the  latter  took  a  hit  following  the  introduction  of Nissan's Almera. We advocate investors to start  buying  Tan  Chong  (FV:  RM5.63),  which  is  also  our  top  pick  in  the  auto  sector, following encouraging bookings for its all new B-segment Nissan Almera.  

TIV  on  target.  Total  industry  volume  (TIV)  for  the  month  of  October  came  in  strong  at  55,358  units,  higher  by  3.3%  y-o-y,  20.7%  m-o-m  and  2%  YTD.  The  numbers  so  far  remain on track to hit our TIV growth target of 2.5% for 2012. We continue to maintain our  TIV growth projection for 2.5% and 1% for 2012 and 2013 respectively.

How the top 5 marques fared. Perodua continues to lead in market share. However, its  October vehicle sales dropped sharply by 14.4%, largely due to tighter lending activities  hitting Viva sales. Toyota sales took a hit as well, with sales dropping marginally by 0.2%  y-o-y.  We  believe  sales  of  its  Vios  may  have  dropped  as  potential  buyers  were  putting  their  buying  decision  on  hold  until  the  price  of  Nissan  Almera  was  unveiled  on  30  Oct.  Both Honda and Nissan staged an impressive growth, with their vehicle sales surging by  46%  and  25.2%  y-o-y  respectively. Honda's impressive growth was due to backlog  deliveries as production was halted throughout most of 1H12 following the Thai flood last  year  while  Nissan saw  recovery  in  its  production also  hit  by  the  Thai  flood  coupled  with  deliveries of the recently launched Almera. As of to date, bookings of the Almera is at an  impressive  7,000,  barely  two  weeks  after  its  official  launch.  Proton  also  saw  its  vehicle  sales bouncing back due to improved sales of its new Preve.
 
Earnings outlook and strategy. Proton's disappointing sales in 3Q are likely to result in  a hit on DRB Hicom's earnings and also drag down component makers. This  does  not  bode  well  for  MBM  given  that  it  relies  on  Proton  for  its  airbag  sales,  through  subsidiary  Hirotako,  though  we  expect  this  impact  to  be  cushioned  by  higher  airbag  production,  thanks to the implementation of the mandatory dual airbag policy effective 1 July. EPMB  and Delloyd Ventures will likewise be hit by Proton's production decline as they also  depend heavily on Proton. UMW and Tan Chong are expected to report better results y-o-y  on  the  back  of  higher  vehicles  sales  and  we  believe  UMW  could  also  register  improved  q-o-q  numbers  on  higher  contributions  from  its  oil  and  gas  and  equipments  divisions. For earnings exposure, we strongly advise investors to buy UMW. Tan Chong's  share  price  may  move  higher  following  its  encouraging  vehicles  sales  last  month  and  better-than-expected demand of its all-new Nissan Almera.
Outlook  for  2013.  Other  than  the  upcoming  national  automotive  policy  (NAP),  we  expect  the  automotive  sector  to  be  quiet next  year.  Growth  would  be  muted  given  the  lack  of  new  key  model  launches  other  than  facelifts. We expect TIV to grow 1% in 2013 on the back of GDP growth of 4.9%. 2014 would be the year to  look out for due to the anticipated launch of the new Perodua Viva and possibly a new Proton line-up. 
OVERWEIGHT.  While  2013  is  expected  to  be  quiet,  we  see  the  market  as  being  forward-looking.  We  maintain our OVERWEIGHT call on the auto sector with Tan Chong (FV: RM5.63) and UMW (FV: RM11.87)  as  top  two  picks.  We  like  Tan  Chong  as  a  laggard  play  on  the  back  of  improving  vehicle  sales  numbers  following the launch of the Nissan Almera. We continue to like UMW for its market dominance via the Toyota  and  Perodua  marques  and  the  turnaround  of  its  oil  and  gas  segment.  We  have  also  upgraded  Delloyd  Ventures to a BUY as its share price retracement gives an upside of 18%.
Source: OSK
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