We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for January 2018 registered sales of 44,575 units (-19% MoM, 0% YoY). The lower MoM car sales were attributed to the absence of year-end promotional events and recovery period from the floods. That said, on YoY-basis, TIV growth was flat due to extra vigour in promotion and launching events last year, while mitigated by the stronger Perodua, Mazda and Nissan sales supported by their all-new Perodua Myvi, allnew Mazda CX-5, and better marketing strategy, respectively. The January 2018 TIV came in within expectation at 8% of our TIV forecast at 590,000 (+2%). Sales volume for February 2018 is expected to be lower than January 2018 due to shorter working month in light of the Chinese New Year festive holidays. MBMR (OP; TP: RM2.85) and BAUTO (OP; TP: RM2.30) are our top picks for the sector. We like MBMR for; (i) its deep value stake in 23.6%-owned Perodua (based on our FY18 profit forecast and attached 10x PER value, MBM’s stake at c.RM1.1b is 23% higher than MBMR current market capitalization), (ii) expected strong turnaround in the alloy-wheel division segment underpinned by the all-new MyVi and expected launch of the all-new Perodua SUV (D38L), and (iii) a stronger MYR. The stock is trading at an undemanding 8.8x FY18E PER compared to 5-year forward average of 11x. Whereas, we like BAUTO for its; (i) solid earnings recovery with the launch of its flagship model, the all-new Mazda CX-5, (ii) superior margins, which is head and shoulders against industry peers (average profit margins of c.8% as compared to peers’ average at c.2%), and (iii) steady dividend yield of 5% with its net cash position, which accounts for 8% of market capitalisation and strong 6% FCFE yield (FY18E).

January 2018 registered sales at 44,575 units (-19% MoM, 0% YoY). The lower MoM car sales were attributed to the absence of year-end promotional events and recovery period from the floods. That said, on YoY-basis, TIV growth was flat due to extra vigour in promotion and launching events last year, while mitigated by the stronger Perodua, Mazda and Nissan sales supported by their all-new Perodua Myvi, all-new Mazda CX-5, and better marketing strategy, respectively. Taking a detailed look at the passenger vehicles segment (-17% MoM, -1% YoY), negative YoY sales was attributed by the lower sales of Proton (-34%), Honda (-5%) and Toyota (- 48%), however, this was mitigated by higher sales of Perodua (+25%), Mazda (+61%) and Nissan (+24%). In MoM sales terms, Mazda (+87%) was the only gainer for the month attributed to the higher delivery of its all-new Mazda CX-5, which was held back last month due to the higher take-up rate for its premium Soul Red Crystal colour and the fact that most of the Mazda sales was concentrated in Klang Valley, which was not affected by the floods. Besides that, all the marques were affected by the aforementioned. Sales volume for February 2018 is expected to be lower than January 2018 due to the shorter working month in light of the Chinese New Year festive holidays.

Perodua still in the lead. Perodua continued to lead the pack with a higher market share at 40% (Jan 2017:36%) and higher sales growth (+25% YoY) with the higher deliveries of the all-new Perodua Myvi. Note that, currently, the all-new Perodua Myvi bookings have hit 48k, with 20k units delivered. At the number two position, Honda registered slightly lower market share of 18% (Jan 2017:19%) with a lower sales growth (-5% YoY) as most of the new launches for Honda was registered in the 2Q17 and we believe that consumers held back on purchases in anticipation of new launches in the same time period (expected launch of the face-lifted Honda HR-V). Progressing further down the list, Toyota saw a significant decline in sales (-48% YoY) with a lower market share of 8% (Jan 2017:13%) due to the termination of “RM1m Bonanza Campaign” and consumers holding back purchases in anticipation of the all-new Toyota CH-R and all-new Toyota Rush as well as face-lifted variants of its best-selling models of Vios, Hilux and Innova. On the other hand, Proton continued showing depressed volume lacking new models launches to boost volume with a lower sales (-34% YoY) and lower market share of 11% (Jan 17:16%). Nissan showed a positive contribution with a higher sales (+24% YoY) and slightly higher market share of 4% (Jan 17:3%) with the on-going promotional campaign to clear its outgoing models as a part of its rationalization strategy to pare down its inventories to a more favourable level of forex exposure. Whereas, Mazda sales surged 61%, and subsequently registered a higher market share of 3% (Jan 2017: 2%) attributed to the higher delivery of its flagship model, all-new Mazda CX-5, which was held back last month due to the higher take-up rate for its premium Soul Red Crystal colour.

MBMR (OP; TP: RM2.85) and BAUTO (OP; TP: RM2.30) are our top picks for the sector. We like MBMR for; (i) its deep value stake in 23.6%-owned Perodua (based on our FY18 profit forecast and attached 10x PER value, MBM’s stake at c.RM1.1b which is 23% higher than MBMR current market capitalization), (ii) expected strong turnaround in the alloy-wheel division segment underpinned by the all-new MyVi and expected launch of the all-new Perodua SUV (D38L), and (iii) a stronger MYR. The stock is trading at an undemanding 8.8x FY18E PER compared to 5-year forward average of 11x. Whereas, we like BAUTO for its; (i) solid earnings recovery with the launching of its flagship model, the all-new Mazda CX-5, (ii) superior margins, which is head and shoulders against industry peers (average profit margins of c.8% as compared to peers average at c.2%), and (iii) steady dividend yield of 5% with its net cash position, which accounts for 8% of market capitalisation and strong 6% FCFE yield (FY18E).

Source: Kenanga Research - 26 Feb 2018