We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for May 2019 registered sales of 60,780 units (+22% MoM, +41% YoY), highest since tax holiday. MoM sales growth was boosted by Hari Raya Aidilfitri promotional offers as well as better financing rate after BNM reduced the Overnight Policy Rate (OPR) by 25bps to 3% in early-May 2019. Meanwhile, YoY sales soared higher due to low base effect in May 2018, which underscored by cautions consumer spending during an election month. The 5M19 reported TIV of 253,808 units (+13%) is within our expectation at 43% of our 2019 TIV target of 600,000 units. Sales volume for June 2019 is expected to be weaker post-stronger festive month and shorter working days from extended Raya Holiday. Our sector toppicks are MBMR (OP; TP: RM3.45) and BAUTO (OP; TP: RM3.00).

May 2019 registered sales of 60,780 units (+22% MoM, +41% YoY). MoM sales growth was boosted by Hari Raya Aidilfitri promotional offers as well as better financing rate after BNM reduced the Overnight Policy Rate (OPR) by 25bps to 3% in early-May 2019. Meanwhile, YoY sales soared higher due to low base effect in May 2018, which underscored by cautions consumer spending during an election month. This was also supported by higher sales on pentup demand for the all-new models (i.e. Perodua ARUZ, Proton X70, and Toyota Vios).

Taking a detailed look at the passenger vehicles segment (+23% MoM, +39% YoY), overall May passenger car sales were stronger across the board, as above-mentioned, especially buoyed by the stronger Proton sales (+51% MoM, +159% YoY), boosted by the all-new Proton X70 (30k bookings, 14.9k delivered) with 2,439 units sold (23% of May sales), supported by the face-lifted Iriz and Persona, while Toyota (+33% MoM, +272% YoY) powered by the higher volume sales from all-new Toyota Vios, allnew Toyota Yaris and Toyota Hilux, which comprises 75% of UMW Toyota sales. Furthermore, Perodua (+4% MoM, +4% YoY) has shifted their sales toward the all-new Perodua ARUZ (25k bookings, 13k delivered) and recorded 3,263 units sold (14% of May sales), while Nissan (+31% MoM, -2% YoY) continued to deliver better sales for its Nissan Serena S-Hybrid (launched in May-2018) and Honda’s (+70% MoM, +31% YoY) new model, Honda HR-V facelift (includes Hybrid), continued to gain traction. On the other hand, despite festivities offers, Mazda (-19% MoM, +74% YoY) fared the worst, as they had fully delivered tax-holiday discounted All-new Mazda CX-5 in April 2019.

Post-festive season weaker June 2019 sales. Sales volume for June 2019 is expected to be weaker post-stronger festive month and shorter working days from extended Raya Holiday, however, this will be cushioned by the higher delivery of the new models, including the all-new Perodua ARUZ (entry-level SUV segment), Honda HR-V facelift (includes Hybrid), all-new Toyota Vios, all-new Toyota Yaris, all-new Toyota Rush, all-new Proton X70, face-lifted Proton Persona and Iriz (based on X70 unique features), and face-lifted Nissan X-Trail.

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) has 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.

National marques continued to in the lead. Perodua continued to lead the pack with a lower market share of 42% (5M18: 43%), but at a higher sales growth (+8% YoY) driven by higher deliveries of the all-new Perodua Myvi, and the all-new Perodua ARUZ (25k bookings, 13k delivered). At the number two position, Honda registered lower market share of 15% (5M18: 18%) with a lower sales growth (-3% YoY) as consumers held back purchases expecting new models in 2H19, which was delayed due to pricing approval issues. On the other hand, Proton (+72% YoY) gained higher market share of 14% (5M18: 9%) owing to the higher delivery of the allnew Proton X70 (30k bookings, 14.9k delivered). Drifting further down the list, Toyota scored stronger sales (+29% YoY) and higher market share of 10% (5M18: 9%) with higher delivery of its best-selling all-new Toyota Vios, all-new Toyota Yaris, and Toyota Hilux. Meanwhile, Nissan (-1% YoY) saw its market share remain unchanged at 4% (5M18: 4%), due to the lack of new volume-driven model launches; whereas, Mazda’s sales soared 9%, with an unchanged market share at 2% (5M18: 2%) attributed to higher delivery of its all-new Mazda CX-5.

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 6.7x FY19E PER. BAUTO (OP; TP: RM3.00) is our other top pick for its: (i) superior margins, above-industry margin (average profit margin of c.10% vs. peers of c.4%), (ii) steady dividend yield at 8%, and (iii) upcoming new models for the local and export market to sustain sales volume. Our TP is based on 13x CY20E EPS, which is at -0.5SD of its 3-year forward historical mean PER.

Source: Kenanga Research - 24 Jun 2019