We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for April 2018 registered sales of 47,089 units (-6% MoM, +10% YoY). The slowdown in MoM car sales was attributed to consumers adopting a “wait-and-see” stance prior to the 14th general election. Nevertheless, YoY TIV growth was boosted by stronger Perodua, Mazda and Honda sales supported by their all-new Perodua Myvi, all-new Mazda CX-5 and current best-selling Honda variants, respectively. YTD 4M18 TIV of 182,229 units (-1%) came in within expectation at 31% of our TIV forecast at 590,000 (+2%). Sales volume for May 2018 is expected to be higher than April 2018, as some of the carmakers are giving early discounts and rebates for the period of May 16th-31st ahead of the implementation of zero-rated GST in 1st June 2018 (at an average c.6% in car price reduction) as well as supported by the Hari Raya festive season promotional campaigns. Furthermore, sales volume for the next 2 to 3 months is expected to be boosted by this zero-rated GST tax holiday transition period until the new SST is gazetted, which may increase the car prices depending on the new mechanism. Our top pick for the sector is MBMR (OP; TP: RM3.30), 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 turn-around 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 8.7x FY18E PER compared to the 5-year forward average of 11x.

April 2018 registered sales of 47,089 units (-6% MoM, +10% YoY). The slowdown in MoM car sales was attributed to consumers adopting a “wait and see” attitude prior to the 14th general election. Nevertheless, YoY TIV growth was boosted by stronger Perodua, Mazda and Honda sales supported by their all-new Perodua Myvi, all-new Mazda CX-5 and current best-selling Honda variants (City, Civic and BR-V), respectively. Taking a detailed look at the passenger vehicles segment (-6% MoM, +11% YoY), higher YoY sales is attributed to the boost in sales of Perodua (+39%), Mazda (+11%) and Honda (+6%): however, this was mitigated by lower sales of Proton (- 29%), Nissan (-31%) and Toyota (-2%). MoM, Toyota (+7%) was the only gainer for the month from volume sales of the all-new Toyota Hilux and supported by high-margin sales of the all-new Toyota CH-R. Whereas, all the other marques’ unit sales were weak due to the “wait-and-see” attitude prior to the 14th general election.

Zero-rated GST starting 1st June 2018 to boost car sales. Sales volume for May 2018 is expected to be higher than April 2018, as some of the car-makers are giving early discounts and rebates for the period of May 16th-31st ahead of the implementation of zero-rated GST in 1st June 2018 (at an average c.6% in car price reduction) as well as supported by the Hari Raya festive season promotional campaigns. Furthermore, sales volume for the next 2 to 3 months is expected to be boosted by this zero-rated GST tax holiday transition period until the new SST is gazetted, which may increase the car prices across the marques depending on the new mechanism.

Perodua leading with 41% market share. Perodua continued to lead the pack with a market share of 41% (4M17:35%) and higher sales growth (+17% YoY) driven by higher deliveries of the all-new Perodua Myvi. Note that, currently, the all-new Perodua Myvi bookings have hit 70k, with 38k units delivered. At the number two position, Honda registered lower market share of 17% (4M17:19%) with a lower sales growth (-8% YoY) as consumers held back purchases in anticipation of new launches in 2H18 (on expectations 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 10% (4M17:12%) as consumers held back purchases in anticipation of the allnew Toyota Rush and face-lifted variants of its best-selling models Vios and Innova. On the other hand, Proton (-33% YoY) and Nissan (-22% YoY) continued to slide further down the pecking order with a lower market share of 9% (4M17:14%) and 4% (4M17:4%), respectively, due to the lack of new model launches. Whereas, Mazda sales surged 47%, and subsequently registered a higher market share of 3% (4M17: 2%) attributed to the higher delivery of its flagship model, the all-new Mazda CX- 5.

MBMR (OP; TP: RM3.30) 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 turn-around 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 8.7x FY18E PER compared to the 5-year forward average of 11x.

Source: Kenanga Research - 24 May 2018