Auto sales in March were in line with expectations. The macroenvironment (2013 GDP: +5.4%) remains supportive of industry growth, helped by low borrowing costs, attractive new models and favourable JPY trends, but offset by high car prices and runaway household debt levels. Regulatory risks are also a concern. Our top picks are Tan Chong and DRB-HICOM. We remain NEUTRAL.

- March auto sales rebound. Data from the Malaysian Automotive Association’s (MAA) show total industry volume (TIV) for Mar gaining 28.1% m-o-m and 7.5% y-o-y respectively. Cumulative sales for 1Q13 reached 157,664 units up 13.8% y-o-y and were within expectations. The strong m-o-m gain in Mar was due to the low base in the preceding month due to the festive holidays. 1Q13 auto sales were lifted by the positive consumer sentiment and interesting new model launches. Also recall sales in 1Q12 were still reeling from the combined effects of supply constraints and the (then) newly introduced stricter financing guidelines. The industry sales growth in 1Q13 has been relatively broad-based, with both the passenger (+13.7% y-o-y) and commercial (+14.4% y-o-y) vehicles expanding at a similar pace

- National car makers continue to lose market share. While Perodua sales have been respectable (Mar: +11.3% m-o-m, +2.0% y-o-y; 1Q13: +4.4% y-o-y) and broadly within expectations, Proton sales have stagnated (1Q13: -2.3% y-o-y). Both Perodua and Proton have both been hampered by a lack of all-new models, while traditional national car customers have been tempted by a myriad of attractive new models launched at increasingly competitive prices. Of 24 launches of new models and variants during the quarter, only two were by Perodua and Proton. The combined national vehicle market share in Mar fell to 51.3% from 52.8% and 52.6% in the preceding month and 2012 respectively.

- Honda and Nissan display stellar growth. Of the non-national marques, Honda and Nissan (including Renault) continue to display the fastest pace of growth during the quarter, with sales up 478.7% and 82.4% respectively. The strong Honda sales performance is a function of the low base in 2012 when it was beset by supply issues arising from the floods in Thailand and the recent introduction of new models. Nissan sales have been boosted by the Almera. Although Toyota sales are down 11.0% y-o-y for the quarter, sales of its volume seller the Vios has been affected by the Almera with an all-new Vios in the pipeline for introduction in 2H13.

- Outlook. The MAA expects lower (m-o-m) sales in Apr due to market uncertainty arising from election promises to reduce car prices. We see regulatory issues and the possibility of consumers deferring their purchase decision as the main risk to the sector.

Source: RHB