According to data from the Malaysian Automotive Association (“MAA”), the total industry volume (“TIV”) in August fell by 1% YoY and 25% MoM to 51,104 units due to the shorter working month in the August. On a YTD basis, the 8MCY13 TIV growth narrowed to 5% YoY (from 6% in YTD July) to 433,023 units, making up 68% of both our latest 2013 TIV forecast of 636,560 (from 641,560 previously, recall that we have lowered our Toyota vehicle sales forecast from 100k to 95k post UMW 2Q13 results) and MAA’s forecast of 640,000 units, respectively; thus in line with expectations. We are of the view that the TIV should trend higher in September with new models launching (such as Nissan Grand Livina MPV) and from the low base in August. On the price hike in petrol (RON95 & RON97) and diesel, we are of the view that it will only have very minimal impact to the TIV based on our analysis on the historical sensitivity of TIV on fuel price hikes. Taking a 2 year data of fuel price changes and TIV growth on a YoY basis, the correlation coefficient works out to be circa -0.16. That said, it suggests that a hike in fuel price will only have a very minimal negative impact to the TIV. Meanwhile on our take, as we have been conservative for the 2013 TIV forecast, we are maintaining both our NEUTRAL rating on the sector and our latest 2013 TIV forecast of 636,560 (+1.4% YoY).

Shorter working period in August 2013 – the main culprit for the lower TIV and TIP numbers. The TIV in August fell by 1% YoY to 51,104 units due to the shorter working month in August 2013. Meanwhile on a MoM basis, TIV decreased by 25% on the back of the similar factor aggravated by the high base effect in July 2013 (which was boosted by aggressive marketing campaigns by industry players in conjunction with the Hari Raya festival). As a result, the 8MCY13 TIV growth narrowed to 5% YoY (from 6% in YTD July) to 433,023 units, making c.68% of both our latest 2013 TIV forecasts of 636,560 (from 641,560 previously, recall that we have lower our Toyota vehicle sales forecast from 100k to 95k post UMW 2QFY13 results) and MAA’s forecast of 640,000 units, respectively; which is in line with expectations. Similarly, August’s total industry production (“TIP”) also came in lower at 37,548 (-5% YoY, -32% MoM) due to lower production volume in both passenger vehicles (-5% YoY, -32% MoM) as well as commercial vehicles (0% YoY and 30% MoM). YTD, the TIP registered a growth of 3% to 385,851 units.

A mixed bag for national marques sales. Perodua sales dropped by 11% YoY and 28% MoM to 13,866 units in August, reflective of the normalization from the high base effect in July after the overwhelming response of the S-series variants of its existing Viva, Alza and Myvi models during the preHari Raya festive seasons. On the other hand, while Proton sales also saw a drop, by 29% MoM, YoY growth was recorded at 7% likely on the back of its successful launching of Proton Saga SV (c.13% or RM5,000 cheaper than the FLX Standard 1.3, the previous entry-level Saga). Positively, this launching has also successfully arrested its declining sales trend and close the YTD negative gap from the previous -5% to -4%.

Honda and Nissan both continue to outrun the market with robust YTD growth. On the nonnational marques front, Honda and Nissan’s MoM recorded lower sales by -11% and -15%, respectively, but both the incumbents continued to outperform the auto market sales with YTD sales growth at 71% and 83%, respectively. On a closer look at Honda, we reckon that its outperformance was likely a reflection of the normalization of the low base effect in 2012 coupled with the overwhelming demand for its Honda’s fourth generation CR-V. Meanwhile, we believe the robust Nissan sales was boosted by the new launching of Serena S-Hybrid as well as the popularity of Almera in the B-segment, which continued to claw market share from Toyota (-20% YTD) on its transitions of the new Vios.

Outlook. We are of the view that the TIV should trend higher in September with new models launching (such as Nissan Grand Livina MPV) and from the low base in August. On the price hike in petrol (RON95 & RON97) and diesel, we are of the view that it will only have very minimal impact to the TIV based on our analysis on the historical sensitivity of TIV on fuel price hikes. Taking 2-year data of fuel price changes and TIV growth on a YoY basis, the correlation coefficient works out to be circa -0.16 (recall that -1 indicates a perfect negative linear relationship which means a change in the value of one variable will predict a change in the opposite direction in the second variable; 0 indicates that there is no discernable relationship between fluctuations of the variables). That said, it suggests that a hike in fuel price will only have a very minimal negative impact to the TIV. Meanwhile on our take, we have been conservative for the 2013 TIV forecast and are maintaining our NEUTRAL rating on the sector and our latest 2013 TIV forecast of 636,560 (+1.4% YoY).

Still NEUTRAL on the sector. We are maintaining our NEUTRAL rating on the sector and retaining our 2013 TIV forecast of 636,560 units (+1.4% YoY) despite the YTD (August) growth of 5% YoY as we are anticipating a lower 2H13 YoY growth due to the normalization base effect.

Source: Kenanga