September 2017 TIV sales at 40,981 units (-21% MoM, -15% YoY). The weak MoM car sales was attributed to the shorter working month and more stringent hire purchase approval, whereas the weak YoY car sales was due to the extra vigour in launching events last year especially for the highly anticipated first Perodua sedan, Bezza (Launched at End-July 2016). Taking a closer look at the passenger vehicles segment (-21% MoM, -14% YoY), in YoY sales terms, Honda garnered the only positive growth at 5%, with its better position boosted by the new lines of vehicles such as BR-V (Jan 2017), face-lifted City (Mar 2017), face-lifted and Hybrid Jazz (Jun 2017), and City Hybrid (Jul 2017). In MoM sales terms, all the carmakers were affected by the shorter working month and stringent loan approval rates with Proton faring the worst at 30% attributed to the lack of new vehicles to invigorate consumer demand. Sales volume for October 2017 is expected to be better than September 2017 due to a longer working period and on-going promotional events.

YTD 9M17 TIV came in stronger at 425,711 (+2%). We attributed the stronger YTD growth to the aggressive discounts and promotion for the purpose of inventory clearing of older models before the roll-out of the newer models anticipated for the remainder of the year. Perodua continued to lead the pack with an unchanged market share of 36% with flattish sales growth mainly from top selling models such as Axia, MyVi and Bezza. At the number two position, Honda’s performance in 9M17 is a significant improvement from 9M16, with higher sales of 24%, and higher market share of 18% (9M16: 15%) attributed to the introduction of the new BR-V (Jan 2017), face-lifted City (Mar 2017), face-lifted and Hybrid Jazz (Jun 2017), and City Hybrid (Jul 2017). Progressing further down the list, both Proton and Toyota saw increase in sales of 12% and 11% with higher market share of 13% (9M16:12%) and 11% (9M16:11%), respectively. Key sales driver for Proton was the introduction of the three new variants in August 2016 namely Persona, Saga and Ertiga, whereas Toyota was helped by its top-selling models of Vios, Hilux and Innova. On the other hand, brands that didn’t fare so well were Nissan, and Mazda, with both facing sales decline of 34% and 31%, with lower market share of 5% (9M16:7%) and 2% (9M16:2%), respectively, as both players lacked new car variants to reinvigorate market demand. Mazda is expected to garner improvement in volume for October 2017 onwards, with the launch of its bread-and-butter model of the new CKD Mazda CX-5 2017, whereas Nissan is expected to continue the downtrend in sales growth for the rest of the year with no indication of new significant models to improve volume.

YTD 9M17 TIV comprised 72% of our 590,000 (+1.7%) TIV forecast for 2017 and within expectation. We made no changes to our year-end forecast as we believe our target of 590,000 TIV is achievable with more robust sales in the months to come supported by the forthcoming model launches such as the replacement for Perodua Myvi, new model of Proton Preve, new facelifted Honda models, the new Toyota CH-R, Toyota Hilux 2.4G, Toyota Vios 2017, face-lifted Toyota Camry, Mazda CX-5 2017, Mazda CX-9 and Mazda CX-8.

BAUTO (OP; TP: RM2.40) is our preferred pick for the sector. All in, we believe BAUTO may be a safer bet given that its targeted customer base in the middle-income to high-income bracket is less sensitive to the rising cost of living with investment merits such as; (i) high potential value to be unlocked with the proposed listing of its Philippines subsidiary where robust growth in its automotive market is anticipated, (ii) potential dividend pay-out of c.80%, which translates into fair dividend yield of c.7.4%, and (iii) higher CKD composition with the launch of Mazda CX-5 in October 2017.

Source: Kenanga Research - 19 Oct 2017