We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for November 2018 registered sales of 48,282 units (+2% MoM, -2% YoY). MoM car sales growth was boosted by continued delivery of new stocks after the supply depletion during the zero-rated tax holiday as well as recovery in the production line for Perodua’s (+8% MoM, +27% YoY) all-new Myvi after supply disruptions in August and September. Nevertheless, YoY car sales growth was lower, mainly on lower commercial segment sales and flat growth in passenger segment lacking new model launches compared to last year. YTD 11M18 TIV of 550,526 units (+5%) is still within our TIV forecast of 590,000 (+2%), as we expect slower sales in December 2018, due to short-working days due to the Christmas festive season and consumers holding back purchases in anticipation of new launches in 1QCY19. Interesting new launches in 1QCY19 include the all-new Toyota Vios, all-new Perodua SUV as well as the first batch delivery of the all-new Proton X70 (launched on 12th December 2018). Our sector top-pick is MBMR (OP; TP: RM3.60) for its undemanding 5.9x FY18E PER compared with average net profit growth of 15% per annum over the next two years.

November 2018 registered sales of 48,282 units (+2% MoM, -2% YoY). MoM car sales growth was boosted by continued delivery of new stocks after the supply depletion during the zero-rated tax holiday as well as recovery in the production line for Perodua’s (+8% MoM, +27% YoY) all-new Myvi after supply disruptions in August and September. Nevertheless, YoY car sales growth was lower mainly from lower commercial segment sales and flat growth in passenger segment lacking new model launches compared to last year.

Taking a detailed look at the passenger vehicles segment (+2% MoM, 0% YoY), MoM passenger car sales growth was stronger mainly from (i) Perodua (+8% MoM) with the recovery in production line for its best-selling all-new MyVi after supply disruption and supported by the back-logged booking delivery of (ii) Mazda’s (+14%) all-new CX-5 and (iii) Nissan’s (+5%) all-new Nissan Serena S-Hybrid. YoY passenger car sales growth was flat mainly from lower sales by Toyota (-55%) and Honda (-32%) as consumers were holding back purchases in anticipation of new models launches in the 1H19.

Expecting slower December 2018 sales from short-working month and tepid purchasing power. Sales volume for December 2018 is expected to be slower, due to short-working days from Christmas festive season and we also expect consumers to hold back purchases in anticipation of new launches in 1QCY19. Interesting new launches in 1QCY19 include the all-new Toyota Vios, all-new Perodua SUV as well as the first batch delivery of the all-new Proton X70 (launched on 12th December 2018).

Perodua maintained leading position, clinching stronger sales with the all-new Myvi. Perodua continued to lead the pack with a market share of 38% (11M17: 35%) and higher sales growth (+13% YoY) driven by higher deliveries of the allnew Perodua Myvi (bookings have hit 120k, with 85k units delivered). At the number two position, Honda registered lower market share of 17% (11M17: 19%) with a lower sales growth (-4% YoY) mainly due to lower sales in August and September with the run-out of inventories during the first two months of zero-rated tax holiday despite better response for its best-selling models such as Honda City, BR-V and Civic (new Honda HR-V facelift was launched in August 2018). Drifting further down the list, Toyota saw lower sales (-2% YoY) and lower market share of 11% (11M17: 12%) due to lower sales in September 2018 during the initial implementation of the new SST and November 2018 after completing the high delivery order in October 2018. Note that, Toyota recently launched the all-new Toyota Rush, all-new Toyota Camry and featured an all-new Toyota Vios in KLIMS 2018, with official launching on 1QCY19. On the other hand, Proton (-11% YoY) and Nissan (+4% YoY) continued to slide further down the pecking order with lower market share of 11% (11M17: 13%) and 5% (11M17: 5%), respectively, due to the lack of new volume-driven model launches. Note that, Proton has launched its first SUV- the all-new Proton X70 on 12 Dec18. Meanwhile, Mazda sales surged 62%, with an unchanged market share at 2% (11M17: 2%) attributed to the higher delivery of its flagship model, the all-new Mazda CX-5.

MBMR (OP; TP: RM3.60) is our sector top pick, with or without an M&A angle, for: (i) its deep value stake in 22.58%- owned Perodua (based on: our FY18E profit, attached 12x PER value, MBMR’s stake at c.RM1.4b), and (ii) expected strong turn-around in the alloy-wheel division segment underpinned by the all-new MyVi and expected launch of the allnew Perodua SUV (D38L). The stock is trading at an undemanding 5.9x FY18E PER compared with average net profit growth of 15% per annum over the next two years.

Source: Kenanga Research - 19 Dec 2018