• TIV contraction widened again to -6%yoy and also fell -8%mom versus
• August 2016 August was artificially lifted by spill over deliveries, particularly for Perodua
• Proton volumes gaining traction after new Persona in August and new Saga in September
• Berjaya Auto (BUY, TP: RM2.50/share) is still our top sector pick

TIV contraction widened again in September registering a -6%yoy fall. September TIV of 48,919 units is also - 8%mom lower than the previous month – we would bear in mind that August was lifted mainly by Perodua but this was temporary given spill over deliveries from a shorter working month in July, particularly after launch of the Bezza in midJuly. Perodua sales normalised in September at 17,147 units and were the key drag to the industry’s month-on-month performance. Nonetheless, we had highlighted in our previous monthly TIV note that Perodua’s production dropped to just ~16K units despite its August TIV registering at ~21K units, signalling a possible normalisation in sales – hence the weaker month-on-month numbers should not come entirely as a surprise.

On top of this, key competitor Proton launched its offensive with the Persona replacement in August and has so far garnered pretty good bookings of over 15,000 units (within 2 months of launch) - this is well ahead of Proton’s internal 3,000-4,000 monthly sales target. The lowest variant Persona is priced similarly to the highest spec Bezza but the Persona comes with 1.6 litre engine capacities and all models come with 5-star ASEAN NCAP rating (5-star ASEAN NCAP only available for highest variant Bezza). As a result of the Persona launch in late August, Proton TIV improved sequentially registering a +37%mom growth to 6,062 units, well outperforming the industry’s -8%mom contraction while market share increased to 13% from 8%-9% levels in the prior 2 months. Proton should continue to register improvements in October given an even bigger boost from the new Saga which was launched late September. The Saga has managed to generate some 6,000 bookings in less than 3 weeks of launch and is also Proton’s largest volume driver, historically accounting for half of Proton’s volume.

Keeping our TIV forecast. Year-to-date TIV of 418,443 units, if annualised, accounts for 94% of our FY16F TIV of 593,302 units. Our forecast implies an 11%yoy contraction relative to the -14%ytd, but we note that this is an improvement versus last month’s 15%ytd contraction. We stick to our numbers as TIV should improve further in the coming months given the impact of Proton’s new Saga and a rebadged version of the Suzuki Ertiga by year end.

Earnings remain depressed, balance sheet deteriorating. TIV numbers asides, earnings for auto companies under our coverage have deteriorated as sales have been driven by aggressive campaigns and outright discounting, while the Ringgit remains relatively weak at ~RM4.20 to the USD and ~RM4.10 to the JPY(x100). We still expect UMW and Tan Chong to report losses for both FY16F and FY17F.

Source: MIDF Research - 21 Oct 2016