Auto sales got off to a slow start  in January, as total industry  volume (TIV) declined  16.9%  m-o-m  and 8.7%  y-o-y  to 50,723 units.  We believe the  market  suffered  a  hangover  after  the  heavy  discounting  and promotions offered in Dec 2013, but  expect the automotive market to  be resilient  in  2014.  We  maintain  our  BUY  calls  on  DRB-HICOM,  Berjaya Auto and Tan Chong Motor Holdings. NEUTRAL.

• A weak start to 2014.  TIV in January contracted 16.9% m-o-m and 8.7% y-o-y  to  just  50,723  units,  according  to  data  from  the  Malaysian Automotive Association (MAA).  The market took a breather after  a frantic close  to  2013  that  was  marked  by  aggressive  year-end  marketing  and sales promotion campaigns  -  Dec 2013  sales  reached 60,493 units. Both the passenger and commercial  segments saw m-o-m declines.  The weak sales can also be partly attributed to the  Lunar New Year holidays falling toward end-January.
• Weak  national  car  sales.  Much  of  the  weak  January  sales  can  be attributed  to  Proton,  Perodua  and  Toyota.  While  Proton’s  sales  grew 14.2% m-o-m to 9,735 units, this came on the back of dismal sales in Dec 2013, as the carmaker did not resort to aggressive discounting. Perodua’s sales fell 33.6% m-o-m and 23.4% y-o-y  after a strong  push in Dec  2013. It was a similar story at Toyota,  where sales declined 35.4% m-o-m and 3.9%  y-o-y.  At  the  other  two  major  original  equipment  manufacturers
• Nissan and Honda, sales were mainly stable m-o-m. Nissan sales eased 19.5% y-o-y due to competition in the B-segment since the launch of the Almera in Nov 2012, while Honda sales continued growing 58.1% y -o-y as a result of  its improved product range.  Auto sales in the broader market slipped  from  the  highs  of  Dec  2013,  but  were  generally  stable.  Mazda,however, continued to grow from strength to strength, albeit off a low base -  sales  increased  by  17.7%  and  29.2%  m-o-m  and  y-o-y  respectively. Deliveries  rose,  helped  by  improving  efficiencies  and  diminishing bottlenecks at the Inokom plant in Kulim.
• Outlook.  The  MAA expects February  sales to be flat,  given the onset of the  Lunar  New  Year  holidays  earlier  this  month.  We  maintain  our  TIV forecast  of  675,000  units  (+2.9%  y-o-y)  in  2014,  driven  by  accelerating GDP growth (2014F: 5.4%), resilient domestic consumption,  an improving external  environment,  an  increasingly  competitive  market  and  the imminent  introduction  of  lower-priced  models.  However,  ever  priceconscious  consumers  could  spell  thinner  margins  for  auto  distributors seeking to grow  their  market share.  Berjaya Auto (BAUTO MK, BUY, FV: MYR1.95)  is  our  sector  pick,  due  to  its  strong  growth  potential  and attractive product offerings.

Source: RHB