We expect TIV for 1Q16 to remain weak, in light of the shorter working month in February and unsustainable sales spurt in December. The outlook for the auto industry through 2016 looks challenging, with continued margin pressure coupled with sluggish consumer spending and a lacklustre economic environment. January’s TIV plunged to 44,590 units after consumers brought forward their purchases to 4Q15 in anticipation of higher car prices in 2016. UNDERWEIGHT.

Consumer discretionary spending under pressure. The outlook for auto sales in February is unlikely to bring any relief for the industry, given the shorter working month for the Lunar New Year holidays. Consumer sentiment remains soft while stringent credit standards by banks fearful of asset quality issues may count against any recovery in 1H16. Near-term demand has already been assuaged by the sales spurt last December. It is also possible that consumers have been trading down, given the higher rate of decline in sales by the nonnational marques, compared to the national brands. With the current economic condition, the tendency of down-trading is likely, as consumers may continue to remain cautious of committing to big-ticket consumer discretionary spending amidst the rising cost of living and tough economic environment. We maintain our cautious view on the auto industry for 2016. Aggressive sales and marketing efforts, in addition to unfavourable forex, will pressure margins. We remain UNDERWEIGHT on the sector.

Plunge in January sales. As we had anticipated, auto sales plunged to 44,590 units (-35.8% MoM, -11.9% YoY) in January, based on data from the Malaysian Automotive Association (MAA). The reported total industry volume (TIV) was the lowest seen since Feb 2012 (44,013 units). The substantial decline was due to consumers bringing forward their purchases to 4Q15 in anticipation of higher vehicles prices this year – a key reason for the robust auto sales last December. Honda and Perodua widen their leads. Perodua’s TIV decreased by 27.9% MoM and rose 3.3% YoY to 15,538 units. Despite the decline in January, Perodua’s market share increased to 34.8%, from 32.0% in 2015, as it continued to benefit from its bestselling model, the Axia. Perodua’s national rival, Proton, improved its market share to 17.4%, from 15.3% in 2015. For non-national marques, Honda set the pace in the new year, registering 5,743 units (-46.6% MoM, -11.9% YoY) in January, compared to just 3,041 units by Toyota (-77.4% MoM, -26.0% YoY). This may have been due to the impending introduction of the new Innova, Fortuner and Hilux models that are based on the common IMV platform. Nissan sales also exceeded Toyota’s. Mazda sales were less impacted – the TIV for January fell just 3.8% MoM but was 54.7% higher YoY, driven by sales of the Mazda 2 and newly launched CX-3 last December.