We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for March 2019 registered sales of 54,776 units (+37% MoM, +10% YoY). MoM sales growth surged on a normalised longer working month and automakers racing to deliver vehicles to meet their sales target for quarter ended 31st March 2019 (or financial year-end for certain companies, i.e. DRBHCOM). Concurrently, YoY sales growth was also higher on pent-up demand for the all-new models (i.e. Perodua ARUZ, Proton X70, and Toyota Vios). The 3M19 reported TIV of 143,064 units (+6%) is within our expectation at 24% of our 2019 TIV target of 600,000 units (+0.2%). Sales volume for April 2019 is expected to be maintained close to the March 2019 level on the usual promotional activities, and roll-out of all-new models. Our sector top-picks are MBMR (OP; TP: RM3.45) and BAUTO (OP; TP: RM2.85).

March 2019 registered sales of 54,776 units (+37% MoM, +10% YoY). MoM sales growth surged on a normalised longer working month and automakers racing to deliver vehicles to meet their sales target for the quarter ended 31st March 2019 (or financial year-end for certain companies, i.e. DRBHCOM). Concurrently, YoY sales growth was also higher on pent-up demand for the all-new models (i.e. Perodua ARUZ, Proton X70, and Toyota Vios).

Taking a detailed look at the passenger vehicles segment (+36% MoM, +13% YoY), MoM passenger car sales growth surged higher with higher sales across the board on longer working month and closing quarter race, which also pushed the YoY sales higher. Notable changes are Perodua (+35% MoM, +12% YoY), Proton (+16% MoM, +46% YoY), Toyota (+24% MoM, +32% YoY), and Nissan (+87% MoM, +14% YoY). Both Perodua and Proton achieved higher sales riding on their respective SUV sales. Perodua ARUZ (15k bookings, 6.6k delivered), recorded 2,926 units sold in March 2019 (16% of March sales) and Proton X70 (25k bookings, 9.9k delivered) with 2,979 units sold in March 2019 (49% of March sales). On the other hand, Toyota was powered by the higher volume sales from all-new Toyota Vios which was launched on 24th January 2019 and supported by maiden contribution from the all-new Toyota Rush (late delivery due to approval issues), while Nissan continued to delivered better sales for its Nissan Serena S-Hybrid.

Expecting flat growth for April 2019 sales. Sales volume for April 2019 is expected to be maintained close to March 2019 level on the usual promotional activities, and roll-out of all-new models (i.e. All-new Toyota Yaris, and face-lifted Nissan X-Trail). Moreover, April 2019 sales will be supported by the higher delivery of the new models, including the all-new Perodua ARUZ (entrylevel SUV segment), Honda HR-V facelift (includes Hybrid), all-new Toyota Vios, all-new Toyota Rush, all-new Proton X70, facelifted Proton Persona and Iriz (based on X70 unique features).

We maintain our 2019 TIV target at 600,000 units (+0.2%). We maintain our 2019 TIV target at 600,000 units, in-line with MAA’s target. We believe the absence of one-off 2018 tax holiday will be offset by exciting new launches in 2019. Note that, we have factored in possible delay in new launches’ timing given the backlog of pricing approvals from the authorities (to 3-5 months, improving from 5-7months, previously), absence of sales boosting tax-holiday, and tepid purchasing power. The Ministry of International Trade and Industry (MITI) had decided to increase the frequency of the monthly meetings held by the Automotive Business Development Committee (ABDC), which is chaired by MITI, from once to twice a month to speed up the vehicles pricing approval process. Nevertheless, due to the recent price movement, we may review our call and TP on DRBHCOM (MP; TP: RM1.90) in the upcoming reports.

National marques gaining market share. Perodua continued to lead the pack with a higher market share of 42% (3M18: 41%) and higher sales growth (+9% YoY) driven by higher deliveries of the all-new Perodua Myvi (bookings at 150k, with c.130k units delivered), and the all-new Perodua ARUZ (bookings at 15k units,6.6k delivered). At the number two position, Honda registered lower market share of 15% (3M18: 18%) with a lower sales growth (-8% YoY) as consumers held back purchases expecting new models in 2H19, which was delayed due to pricing approval issues. On the other hand, Proton (+42% YoY) gained higher market share of 13% (3M18: 9%) owing to the higher delivery of the all-new Proton X70 (bookings at 25k, with 9.9k units delivered). Drifting further down the list, Toyota scored stronger sales (+8% YoY) and better market share of 10% (3M18: 9%) with higher delivery of its best-selling all-new Toyota Vios, and supported by the all-new Toyota Rush (late delivery due to approval issues) and all-new Toyota Camry. Meanwhile, Nissan (-3% YoY)’s market share remained unchanged at 4% (3M18: 4%), due to the lack of new volume-driven model launches; whereas, Mazda’s sales decreased by 4%, with a lower market share at 2% (3M18: 3%) attributed to the normalisation in delivery of its all-new Mazda CX-5 after delivering the back-logged orders in the previous months.

MBMR (OP; TP: RM3.45) is our sector top pick, for: (i) its deep value stake in 22.58%-owned Perodua, and (ii) dual-income streams as the largest Perodua dealer and from its manufacturing division as a parts supplier for Perodua as well as other popular marques. Our TP is based on 8x FY19E EPS, which is at -0.5SD of its 5-year forward historical mean PER and the stock is currently trading at an undemanding 6.9x FY19E PER. BAUTO (OP; TP: RM2.85) is our other top pick for its: (i) steady dividend yield at 7.2%, with a minimum targeted 80% pay-out of PATAMI, (ii) solid earnings recovery buoyed by the all-new Mazda CX-5, and (iii) superior margins, above industry peers (average profit margin of c.8% vs. peers at c.2%). Our TP is based on 13x CY19E EPS, which is at -0.5SD of its 3-year forward historical mean PER.

Source: Kenanga Research - 22 Apr 2019