March  auto  sales  rebounded  on  seasonal  factors  following  the  Lunar New  Year  holidays  in  February.  While  buying  interest  remained  high helped  by  positive  economic  growth,  attractive  new  launches  and competitive  pricing,  these  were  mitigated  by  the  recent  hike  in  auto financing  rates,  higher  cost  of  living  and  elevated  household  debt levels. Berjaya Auto is our Top Pick. NEUTRAL.

• March auto sales rebound as expected. Auto sales in March were within expectations. Based on data from  the  Malaysian Automotive Association (MAA),  total industry volume (TIV) for March  rose 16.2% m-o-m and 2.3% y-o-y to 58,919 units, while 1Q14 cumulative sales inched up  only 1.4% yo-y to 159,910 units. The strong m-o-m gain was  driven by  a  low base in February from the Lunar New Year holidays, a rush in vehicle deliveries by companies  with  financial year  ending March, as well as  a  longer  working month.
• National  car  makers  lose  ground.  Proton  and  Perodua,  whose  main target market is the middle to low-income group, saw their YTD cumulative sales drop 4.7% and 5.7% y-o-y respectively. We believe this reflected the higher cost of living  arising  from  the Government’s subsidy rationalisation programme,  a  recent hike in hire purchase financing rate,  as well as  high household debt levels  leading to  more cautious consumer behaviour. The combined national vehicle market share in  1Q14  fell to 48.6% from 51.8% in February and 51.4% in 1Q13.  
• Honda,  Toyota  sales  remain  strong.  Honda  and  Toyota  (including Lexus)  continued  to  chalk  up  strong  growth  with  1Q14  quarter  sales  up 30.1% and 21% y-o-y respectively. Honda’s strong sales were attributed to its  completely knocked  down  (CKD)  Jazz Hybrid  model in addition to the new Accord, while  Toyota sales were bolstered by  favourable response to its newly launched  Vios  and  Altis.  Nissan suffered an  18.7%  y-o-y  sales drop in the quarter as the initial positive response to the Almera – its bestselling  model  last  year  –  has  eased  given  competition  from  the  newly launched  Vios as well as from other marques. Meanwhile, Mazda’s flattish sales reflected bottlenecks at its current CKD operation  but going forward, sales  should  pick  up  with  the  recent  commissioning  of  its  new  facility within the Inokom plant.
• Outlook.  The MAA expects sales to be maintained at current levels in the coming  month,  driven  by  more  upcoming  launches  of  new  models.  Key risks  to  the  sector  include  rising  interest  rates  and  inflationary  pressure which  will  cap  discretionary  consumer  spending.  Berjaya  Auto  (BAUTO MK, BUY, FV: MYR2.55) remains our top sector pick given its strong sales and earnings growth (54.4% 3-year EPS CAGR). 

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Source: RHB