Auto sales in June rebounded 12.1% MoM (-1.9% YoY), bringing the 1H15 total industry volume (TIV) to 322,178 units (-3.3% YoY). While the rebound was expected, with the higher sales volumes driven by festive promotions and higher demand ahead of the Aidil Fitri holidays, the undertone remained muted. We reiterate our NEUTRAL call on the sector. Our Top Pick remains Berjaya Auto.

Sales boosted by festive promotions. According to data from the Malaysian Automotive Association (MAA), auto sales in June surged by 12.1% MoM but slipped by 1.9% YoY to 57,431 units. The MoM gainswere mainly due to the pre-Aidil Fitri sales promotions and discounts given by the car manufacturers and dealers. Cumulative 1H TIV performance contracted 3.3% YoY, with YTD sales of 322,178 units.

A good month for non-national marques. Overall, most non-national marques recorded higher sales volume MoM. Toyota’s sales grew 18.8% MoM but slumped 6% YoY to 9,173 units. Honda, Mazda and Nissan recorded solid sales numbers, growing both MoM and YoY. Honda sales rose 39.3% MoM and 18.8% YoY to reach 8,668 units. With strong product offerings in all passenger vehicle sub-segments, Honda continues to record strong cumulative YoY gains among non-national marques, with YTD sales of 43,596 units (+17.2% YoY). Nissan’s total industry volume (TIV) rose by 13.4% MoM to 3,789 units (+6.7% YoY). Meanwhile, Mazda’s YTD sales reached 6,582 units (+13.6% YoY) We believe this higher sales volumes is partially due to its recentlyintroduced Mazda 2.

Business as usual for national marques. Perodua vehicles continued to register robust sales on the back of the A-segment Axia – although registrations for the month contracted 4.7% MoM. Perodua’s cumulative sales volume increased to 108,502 units (+14.8% YoY). Consumers continue to favour Perodua over Proton. Despite the festive promotions, Proton vehicle registrations remained resolutely below the 10,000 unit mark, up 11.9% MoM but 7.9% lower YoY to reach just 9,267 units.

Outlook. Consumers and businesses continue to adjust to the new GST regime. Accordingly, the outlook for auto sales in the next few months willremain competitive and challenging. With consumers having brought forward their purchases to take advantage of the aggressive Aidil Fitripromotions in addition to the holiday-shortened month, we expect July vehicle sales to decline. Headwinds for the sector include the weaker MYR, strict cedit standards and a slowdown in the general economy. We remain comfortable with our 2015 TIV forecast of 650,000 units (MAA: 680,000 units, Malaysia Automotive Institute: 700,000 units).