Uptick in November TIV

Total Industry Volume (TIV) in November registered a slight uptick to 49.1k units (MoM: +2.5%, YoY: -12.5%). MAA attributed the slightly better sales to new model launches and very attractive offers and discounts. Biggest MoM gainers in November was Toyota (MoM: +26.4%, YoY: -32.6%) and Nissan (MoM: +23.2%, YoY: -24.6% YoY) mainly due to a low base effect and the launch of Toyota Vios FL in end-October. We expect December’s TIV to see a surge as we see full impact from year-end promotions to clear inventories. YTD, total TIV declined by 13.7% YoY to 515.3k units. This constitutes 90% and 89% of ours and MAA’s 2016 TIV forecast respectively; and is within our expectations.

Market Share of National Marques Eroded

Non-national cars gained significant market share from 50% in October to 54% in November for TIV. Proton (MoM: -4.0%, YoY: +2.3%) and Perodua (MoM: -4.3%, -8.8% YoY) disappointed as sales volume normalised after recent new model launches. On the other hand, all non-national marques showed MoM growth with the exception of Mazda (MoM: - 22.7%, YoY: -36.3%) and VW (MoM: -0.5%, YoY: -32.9%). Luxury marques Mercedes (MoM: +2.5%, YoY: +5.4%) and BMW (MoM: +8.1%, YoY: 22.0%) continued to impress as its target market are less affected by stringent hire purchase loan requirements.

Brands Clearing Inventories

Companies typically offer very attractive discounts in December to clear inventories before the new year. This year is no different with marques like Proton, Perodua, Toyota, Nissan and Honda announcing discounts of up to RM10k. For annual TIV to meet our forecast (570k units), December sales would have to register 55k units. Due to aggressive discounts, we believe this is possible. To recap, highest monthly TIV in 2016 was registered in June (57.3k units) mainly due to Hari Raya promotional activities.

Headwinds Remain in 2017

We believe headwinds for auto companies in Malaysia will continue in 2017. Firstly, sales volume will remain weak as 1) stringent hire purchase loan requirements persists, 2) new alternative transportation is introduced, 3) car ownership costs increases, and 4) consumer sentiment recovers slower than expectations. Additionally, margins will continue to narrow as 1) ringgit is expected to remain weak in 2017 and 2) companies are forced to offer discounts to clear old inventories. Lastly, there was some excitement in 2016 as Perodua launched its first sedan whilst Proton refreshed its model line-up. We note that, launches in 2017 will likely pale in comparison.

Maintain Underweight

We maintain our Underweight stance on the industry and TIV forecast of 570k units. This is given the lack of near-term re-rating catalysts for the sector. In addition, stringent hire purchase loan requirements and cautious consumer sentiment continues to subdue TIV. On a brighter note, year-end discounts should boost the current weak trend in TIV numbers. BAuto is rated as Hold with TP of RM2.18 due to its handsome dividends. Meanwhile, UMW and MBM Resources are rated as Sell with TP of RM4.05 and RM2.20, respectively.

Source: TA Research - 21 Dec 2016