November auto sales disappointed mainly due to technical glitches at the JPJ’s new online vehicle registration system. Year-end seasonal factors were also blamed although we think this would have been offset by the ongoing sales promotions. We continue to expect consumption spending to stay resilient in 2014 and forecast TIV of 675,000 units. We like DRB-HICOM and Tan Chong. NEUTRAL.

• Disappointing November sales.The Malaysian Automotive Association (MAA) announced that total industry volume (TIV) in November declined to 52,252 units, down 5.1% m-o-m and 2.1% y-o-y. Cumulative sales for the 11-month period to November rose 5.0% y-o-y to 595,298 units. The MAA attributed the lower sales to seasonal factors in addition to the technical difficulties being experienced by the Road Transport Department (JPJ)’s new MySIKAP online vehicle registration system. Channel checks suggest that the delays are resulting in new cars taking up to a week to be registered compared to less than a day before. Seasonal factors include consumers’ preference to register their vehicles in a new year, although this will be offset by attractive year-end promotions being offered. The new system was reported to have been launched on 1 Nov. December sales prospects will depend on how quickly the JPJ is able to resolve the technical issues.
• National car sales down.Proton sales sank 28.5% m-o-m and 10.2% yo-y to a dismal 9,247 units in Nov, the second lowest monthly sales total in 2013. Perodua sales declined 3.9% m-o-m to 14,928 units but are on track to meet its 2013 sales target of 193,000 units. The Big Three non-national marques all reported higher m-o-m sales in November. As expected, Toyota sales continue to recover with the new Vioshelping to boost sales volume. Toyota sales should meet our revised 2013 target of 91,000 units.
• Outlook.We are forecasting TIV of 675,000 units in 2014. Positive drivers include accelerating GDP growth (2014F: 5.4%), positive demographics, low unemployment rates, as well as an improving external environment that could lift sentiment. On the flip side, households are already stretched while higher fuel costs and electricity tariffs are pushing inflation and interest rates higher that could crimp consumer discretionary spending on big ticket items like cars. Heightened competition and penny-pinching consumers will crimp margins.
• No compelling catalysts.DRB-HICOM (DRB MK, BUY, FV: MYR3.40) is attractive for its latent earnings potential and hidden asset value. There have been some early signs of a nascent turnaround at Proton with its new global small car (GSC) due for launch in 2014. We like Tan Chong (TCM MK, BUY, FV: MYR7.25)’s long-term regional growth strategy.

Source: RHB