Stronger-than-expected December sales lifted total industry volume (TIV) for 2015 to 666,635 units – well above our forecast of 650,000 unitsdue to consumers bringing their purchases forward in anticipation of higher car prices in 2016. The auto sector will likely remain challengingin 2016 with a weak MYR and lower sales volume compounded by margin compression. We maintain UNDERWEIGHT on the auto sector.

Strong momentum in December. According to data from the Malaysian Automotive Association (MAA), December TIV reached a new monthly record of 69,401 units (+23.7% MoM, +7.3% YoY). Stronger auto sales in 4Q15 (+11.1% QoQ) helped to lift total 2015 volumes to match the 2014 total. The robust quarter was due to consumers bringing forward their purchases in anticipation of higher vehicle prices in 2016 arising from a weaker MYR. The continued aggressive sales promotions and marketing campaigns also contributed as distributors tried to meet their 2015 sales targets.

Perodua and Toyota still the market leaders. Market share for Perodua increased to 32.0% in 2015 from 29.3% in 2014, benefitting from the success of Axia. Proton’s market share continued to diminish due to its weak brand presence and dated model line-up. Despite the intense competition from Honda in 2015, Toyota (including Lexus) managed to retain its position as the No.1 non-national marque as TIV for Toyota jumped 37.7% MoM in December to 13,439 units, helping it to beat Honda in a close photo finish. However, excluding Lexus, Honda marginally edged out Toyota in 2015. For the year, Honda sales rose 22.5% YoY but Toyota contracted 7.5% YoY. Nissan also finished theyear strongly to record a 2.4% YoY increase for the year. Mazda sales grew 11.9% MoM, boosted by the recently-launched CX-3 completely built-up (CBU) last December. Mazda achieved 2015 sales of 14,325 units, up 25.9% YoY.

Sluggish 2016 expected. We remain cautiously pessimistic on auto sales in 2016. Consumer spending remains sluggish with declining propensity for big-ticket discretionary spending. Sales in 1H16 will likely slow after the robust 4Q15, as onsumers adjust to higher vehicle prices and more distributors are likely to raise prices going forward. With the slowing economic environment and challenging industry conditions compounded by a weak MYR, auto manufacturers and distributors wouldcontinue experiencing thinning margins. We expect a 4% contraction in 2016 TIV to 640,000 units. UNDERWEIGHT.