We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for March 2018 registered sales of 49,985 units (+23% MoM, -7% YoY). The surge in MoM car sales was attributed to the longer working month as well as the usual rush to deliver more vehicles to close off FYE March. Nevertheless, YoY TIV growth still lagged behind due to the 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 Mazda CX-5, respectively. YTD 3M18 TIV of 135,140 units (-4%), came in within expectation at 23% of our TIV forecast at 590,000 (+2%). Sales volume for April 2018 is expected to be around the same level as March 2018, attributed to consumers adopting a “wait and see” attitude ahead of the 14th general election which is set to be held on 9th May 2018. Our top pick for the sector is MBMR (OP; TP: RM2.85), with or without an M&A angle, for its deep value stake in 22.58%-owned Perodua and expected strong turnaround for its alloywheel division with the all-new Perodua Myvi and expected launch of the all-new Perodua SUV (D38L). We also like BAUTO (OP; TP:RM2.30) for its solid earnings recovery with the launching of its flagship model, the all-new Mazda CX-5 and its superior profit margins.

March 2018 registered sales at 49,985 units (+23% MoM, -7% YoY). The surge in MoM car sales was attributed to the longer working month as well as the usual rush to deliver more vehicles to close off FYE March. Nevertheless, YoY TIV growth still lagged behind due to the 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 Mazda CX-5, respectively. Taking a detailed look at the passenger vehicles segment (+21% MoM, -8% YoY), negative YoY sales is attributed to the lower sales of Proton (-31%), Honda (-18%), Toyota (-19%) and Nissan (-30%); however, this was mitigated by higher sales of Perodua (+7%), and Mazda (+36%). In MoM, all marques’ unit sales rose across the board due to the longer working month and marketing promotion to clear off the run-out inventories before launching new models and face-lifted version of the existing variants in stages for the rest of the year. Sales volume for April 2018 is expected to be around the same level as March 2018 attributed to consumers adopting a “wait and see” attitude ahead of the 14th general election which is set to be held on 9th May 2018.

Perodua leading with 41% market share. Perodua continued to lead the pack with a market share of 41% (3M17:36%) and higher sales growth (+11% YoY) driven by higher deliveries of the all-new Perodua Myvi. Note that, currently, the all-new Perodua Myvi bookings have hit 60k, with 28k units delivered. At the number two position, Honda registered slightly lower market share of 18% (3M17:19%) with a lower sales growth (-11% YoY) as most of the new launches for Honda was registered in the 2Q17 and we believe that consumers held back 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 (-23% YoY) with a lower market share of 9% (3M17:12%) as consumers held back purchases in anticipation of the allnew Toyota Rush and face-lifted variants of its best-selling models Vios and Innova as well as expecting contributions from the all-new Toyota C-HR and 2018 Toyota Hilux facelift to pick up in April 2018 (first delivery in mid-March 2018). On the other hand, Proton (-34% YoY) and Nissan (-11% YoY) continued to slide further down the pecking order with a lower market share of 9% (3M17:14%) and 4% (3M17:4%), respectively, due to the lack of new model launches. Whereas, Mazda sales surged 65%, and subsequently registered a higher market share of 3% (3M17: 1%) attributed to the higher delivery of its flagship model, the allnew Mazda CX-5.

MBMR (OP; TP: RM2.85) is our top pick in the sector, with or without an M&A angle, 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. We also like BAUTO (OP; TP: RM2.30) 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 above industry peers (average profit margins of c.8% as compared to peers’ average of c.2%), and (iii) steady dividend yield of 4.5% with its net cash position, which accounts for 7% of market capitalisation and strong 5% FCFE yield (FY18E).

Source: Kenanga Research - 20 Apr 2018