Auto sales in May 2015 were subdued despite total industry volume (TIV) rebounding 13.4% MoM (-8.4% YoY). The higher MoM sales are mainly due to the spillover from April, when dealerships faced stock shortages after halting new stock orders in March and rushed to clear their Sales Tax paid stock to avoid double taxation. Berjaya Auto is our Top Pick. Maintain NEUTRAL on the sector

Spillover from April boosts May registrations. According to the Malaysian Automotive Association (MAA), sales in May surged 13.4% MoM but eased 8.4% YoY to 51,254 units. Cumulative sales volumes reached 264,747 units, down 3.6% YoY. The higher sales in May were helped by a spillover from April, when dealerships were light on channel inventory after halting new stock orders in March to avoid having to pay both sales tax and goods and services tax (GST) for inventory held over 31 Mar/1 Apr. Channel inventories were re-stocked through April in time for delivery in May.

Toyota sales pick up. Toyota sales picked up to 7,724 units, recording its best month year so far in 2015 – up 24.8% MoM. Nonetheless, the weak sales in preceding months meant that cumulative sales of 30,517 units still show a 27.7% YoY decline. Honda sales eased for the second consecutive month to 6,621 units (-5.2% MoM, -15.5% YoY) but its strong product suite means that cumulative sales are up 16.8% YTD. Mazda total industry volume (TIV) surged 63.8% MoM to 1,155 units (-10.6% YoY). Meanwhile, Nissan is the only marque to record both MoM and YoY improvement.

Another strong month for Perodua. Perodua enjoyed another good month, bringing cumulative sales volume to 92,027 units on the back of solid demand for the new Axia model. Proton sales continued to languish and are now down 22.7% for the year.

Outlook. The MoM recovery, boosted by the spillover of vehicle registrations from the preceding month, masks a relatively subdued automotive market. Consumers and the broader economy will take some time to adjust to the new GST regime that has raised living costs. Consumers are turning increasingly price sensitive, with many opting to trade down (to a cheaper model) or even opt for a used vehicle. Accordingly, the automotive market will continue to remain competitive with margins under pressure. Other challenges for the industry include stricter credit standards, resulting in a high loan rejection rate, and a weakening MYR. Nevertheless, we expect an improvement in auto sales in June in conjunction with Aidil Fitri sales promotion campaigns. We maintain our 2015 TIV forecast of 650,000 units (MAA: 680,000 units).

Source: RHB Research - 22 Jun 2015