We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for February 2018 registered sales of 40,578 units (-9% MoM, -4% YoY). The lower MoM car sales were attributed to the shorter working month in light of the Chinese New Year festive holidays. Subsequently, on YoY-basis, TIV growth was also lower due to extra vigour in promotion and launching events last year, while mitigated by the stronger Perodua, and Mazda sales supported by their all-new Perodua Myvi, and all-new Mazda CX-5, respectively. YTD 2M18 TIV of 85,153 units (-2%), came in within expectation at 14% of our TIV forecast at 590,000 (+2%). Sales volume for March 2018 is expected to be higher than February 2018 due to the longer working month as well as the usual rush to deliver more vehicles to close off FYE March. 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 22.58%-owned Perodua (based on our FY18E profit and attached 12x PER value, MBMR’s stake at c.RM908.7m), (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 9.5x 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 of c.2%), and (iii) steady dividend yield of 4% with its net cash position, which accounts for 7% of market capitalisation and strong 4% FCFE yield (FY18E).

February 2018 registered sales at 40,578 units (-9% MoM, -4% YoY). The lower MoM car sales were attributed to the shorter working month in light of the Chinese New Year festive holidays. Subsequently, on YoY-basis, TIV growth was also lower due to extra vigour in promotion and launching events last year, while mitigated by the stronger Perodua, and Mazda sales supported by their all-new Perodua Myvi, and all-new Mazda CX-5, respectively. Taking a detailed look at the passenger vehicles segment (- 8% MoM, -6% YoY), negative YoY sales is attributed to the lower sales of Proton (-37%), Honda (-9%), Toyota (-20%) and Nissan (-37%); however, this was mitigated by higher sales of Perodua (+3%), and Mazda (+121%). In MoM sales terms, Toyota (+13%) was the only gainer, despite having registered declining YoY growth, attributed to the better reception of UMW Toyota Motor’s Chinese New Year promotion despite the shorter working month, especially for its best-selling Toyota Vios and supported by the sales of all-new Toyota Harrier. Sales volume for March 2018 is expected to be higher than February 2018 due to the longer working month as well as the usual rush to deliver more vehicles to close off FYE March.

Perodua leading with 41% market share. Perodua continued to lead the pack with a higher market share at 41% (2M17:35%) and higher sales growth (+13% YoY) driven by higher deliveries of the all-new Perodua Myvi. Note that, currently, the all-new Perodua Myvi bookings have hit 68k, with 28k units delivered. At the number two position, Honda registered slightly lower market share of 18% (2M17:19%) with a lower sales growth (-7% 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 (on expectations of the launching of the face-lifted Honda HR-V). Progressing further down the list, Toyota saw a significant decline in sales (-36% YoY) with a lower market share of 9% (2M17:12%) as 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 (-35% YoY) and Nissan (-10% YoY) continued to slide further down the pecking order with a lower market share of 10% (2M17:15%) and 4% (2M17:4%), respectively. Whereas, Mazda sales surged 83%, and subsequently registered a higher market share of 2% (2M17: 1%) attributed to the higher delivery of its flagship model, all-new Mazda CX-5.

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 22.58%-owned Perodua (based on our FY18E profit and attached 12x PER value, MBMR’s stake at c.RM908.7m), (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 9.5x 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 of c.2%), and (iii) steady dividend yield of 4% with its net cash position, which accounts for 7% of market capitalisation and strong 4% FCFE yield (FY18E).

Source: Kenanga Research - 21 Mar 2018