December sales up 27% YoY. Vehicle sales are usually lower in November-December as buyers normally prefer to wait and take delivery of the new year's production stock. However, aggressive promotional campaigns which offer discounts and significant savings by some of the auto players have pushed up sales in December, resulting in the total industry volume (TIV) for the month to rise 27% YoY to 60,470 units. Sales of passenger cars increased 25% YoY to 53,402 units while commercial vehicles grew 39% YoY to 7,068 units. 

TIP for the month up 42% YoY.  December's total industry production (TIP) rose 42% YoY to 45,153 units, led mainly by passenger vehicles. The production of passenger vehicles was almost double that of last year at 41,760 units (+47% YoY). However, the production growth of commercial units was relatively unchanged at 3,393 units (+0.5% YoY). 

2012 TIV exceeds projections. Despite the sluggish sales in 1Q12 due to the introduction of the new lending guidelines by the central bank, TIV for the year managed to chart a YoY increase of 5% to 627,753 units-implying an average of 52,300 units of vehicle sales per month. The 2012 TIV has surpassed the industry's projection of 615,000 units by 2% and our in-house forecast of 613,674 units by 2% as well. The higher TIV was underpinned by the stronger sales seen from May 2012 onwards as both auto companies and buyers gradually adapted to the new guidelines and due to the introduction of new models as well as the normalisation of the supply chain.     

National marques still top. In 2012, national car makers-Perodua and Proton retained their no.1 and no.2 positions, respectively, where together, they captured c.60% of the market share. Perodua recorded car sales of 189,137 units (+5% YoY), which exceeded its own internal sales target of 188,000 units (+0.6%). In contrast, sales of Proton cars fell 11% YoY to 141,031 units, possibly due to the lack of new models.   

Share of non-national marques growing. Toyota retained its lion share in the non-national car market. Its 2012 sales for passenger and commercial vehicles improved by 17% and 58% YoY respectively. Meanwhile, Honda and Nissan's passenger car sales went up 8% and 11% YoY respectively backed by the normalisation in their productions. Toyota, Honda and Nissan made up 25% share of the local auto market in 2012 (2011: 25%) and we believe their share may grow larger going forward. We also expect to see a stronger sales growth of the Volkswagen and Hyundai marques as they have gradually over the years  taken up a bigger slice of the pie through the sales of new and improved models.  

TIV forecast raised, but sector rating remains unchanged. We have upgraded our 2013 TIV forecast to 641,560 units (+2.2%) from 627,790 units previously. We maintain a Neutral rating on the auto sector and prefer  DRB-Hicom (OP, TP: RM3.45) for its strong auto division growth potential and the group's planned transformation exercise to unlock assets, earnings and cash. Meanwhile, we continue to retain our  Market Perform ratings on  MBM Resources (TP: RM3.68), UMW Holdings (TP: RM12.37), and Tan Chong Motors (TP: RM4.36).

Source: Kenanga