We recently attended  the Malaysia Automotive Institute  (MAI) 2014/2015 Review  &  Insight  seminar  and  came  away  positively  surprised  by  the strong  December  sales,  which  lifted  2014  TIV  volume  by  1.5%  YoY  to 665,675 units.  The MAI maintains  its 2015 TIV forecast at 700,000 units,significantly higher than our  forecast of 650,000 units.  We reiterate  our NEUTRAL call on the sector, with Berjaya Auto still our Top Pick. 

Auto sales ended 2014  with a bang.  According to  the  MAI,  auto sales in December  reached  63,870 units (+15.5% MoM),  bringing  2H14 total industry volume (TIV) to  332,533 units,  close  to  1H14 sales volume  of 333,142  units,  making  up  for  the  relatively  lacklustre  sales  earlier  in 2H14.  We  believe  the  robust  sales  in  December  were  largely  due  to pent-up  demand from  car  buyers  who  had  held  back  purchases in the previous months in anticipation of year-end bargains  from carmakers, in addition to the availability of certain popular models. Overall,  2014 TIV grew  1.5%  YoY  to  reach  665,675  units,  helped  by  new  models,  more competitive  vehicle  prices  and  year-round  promotions  by  automakers. Perodua was the market leader in 2014  followed by Proton and Toyota,with market shares of 29.4%, 17.4% and 15.3% respectively. 

MAI  maintains  2015  TIV  forecast.  The  MAI  maintains  its  2015  TIV forecast at 700,000 units (+5.1% YoY), citing resilient consumer demandand competitive car prices as growth drivers. Another factor cited by the MAI i the recent dip in crude oil prices leading to lower retail fuel prices,which  could  make  the  cost  of  vehicle  ownership  more  affordable.  The MAI  believes  that  consumer-incentive  schemes  such  as  “Cash  for Clunkers”  (CFC),  if  implemented  could  potentially  raise  2015  TIV  by 50,00  units.  Beneficiaries  of  such  a  scheme  will  be  national  car manufacturers.  Even  if the CFC scheme is opened to non-national car manufacturers,  we  believe  it  will  not  benefit  them  as  much  given  the higher  absolute  prices  of  non-national  cars  and  the  different demographics of non-national car buyers generally.

Outlook.  We  are less optimistic  on the  sector  outlook  than the MAI  and expect  TIV  to  ease  to  650,000  units  in  2015  on  the  back  of  theimpending  implementation  of  the  goods  and  services  tax  (GST),  rising cost  of  living  as  well  as  higher  hurdles  to  qualify  for  bank  financing,which  could  weigh  on  sales.  On  the  flip  side,  we  expect  overall consumption  spending  patterns  to  stay  resilient,  helped  by  a  strong product pipeline and a competitive marketplace where manufacturers are prepared to offer discounts, implying continued pressure on margins. We remain  NEUTRAL  on  the  sector.  Our  Top  Picks  are  Berjaya  Auto  and MBM Resources – both are beneficiaries of the weaker JPY.

Source: RHB