Auto sales ended 2014 on a high note with a record month in December. We  remain  NEUTRAL  on  the  sector  with  Berjaya  Auto  and  MBM Resources as our Top Picks.  Total industry volume (TIV) for 2014 grew 1.6% YoY to 666,465 units, missing our earlier forecast of 675,000 units. The  GST  implementation  and  other  macroeconomic  headwinds  will likely pose challenges for auto sales in 2015. 

A record December.  According to data from the Malaysian Automotive Association (MAA), December TIV was an all-time monthly sales record with 64,660 units registered  (+16.9% MoM,  +6.9% YoY),  bringing 2014 sales  to  666,465  units,  up  1.6%  YoY.  As  expected,  this  missed  our earlier  sales  target  of  675,000  units  after  tepid  monthly  sales  from August  to  November.  Most  marques  reported  strong  MoM  sales  in December as distributors pushed hard to meet their 2014 sales target swith  year-end  sales  promotions.  We  believe  the  strong  sales  numbers achieved  were  a  function  of  aggressive  discounting  and  should  not  be 
interpreted  as  a  positive  shift  in  consumer  discretionary  spending pattern. 

Proton sales stay tepid, Perodua makes headway.  Proton was one of the  worst-performing  marques  in  2014  with  sales  diving  16.6%  YoY.Proton sales have yet to see a recovery despite the launch of the new Iriz in September. This was attribut ed to a slow ramp-up in production asmanagement  was  careful  not  to  repeat  legacy  quality  control  issues. Another  reason  given  was  the  unanticipated market  preference  for  the 1.3 auto variant,  for which  Proton had low channel inventories.  Perodua had no reported production hiccups of the new Axia and is targeting total sales of 208,000 units in 2015.

Honda topples Toyota in the passenger segment.  Honda is officially the  number  one  non-national  passenger  vehicle  (PV)  marque,  toppling Toyota  in  2014  with sales  of  77,495  units (+50.4%  YoY).  Honda  sales were  driven  by  strong  product  offerings  in  all  PV  sub-segments. However,  Toyota  remained  the  top  non-national  vehicle  brand  after adding commercial vehicles with total sales (including  Lexus) of 103,636 units,  up  12% in  2014  helped  by  strong  sales  of  the  Vios  and  Corolla Altis.  For  the  year,  non-national  PV  sales  rose  14.5%  YoY  with  nonnational PV market share reaching 47.1% (2013: 41.9%).

NEUTRAL.  We expect TIV to slip slightly to 650,000 units in 2015 after three consecutive years of growth. The implementation of  the goods and services  tax  (GST),  macroeconomic  headwinds  combined  with  rising living costs will  likely  put pressure on consumer discretionary spending. Factors  supporting  sales  include  a  strong  product  pipeline  and  a competitive  market  place  with  distributors  prepared  to  discount.  We remain  bullish  on  Berjaya  Auto’s  prospects,  with  growth  coming  from market share gains.

Source: RHB