Jan 23, 2017

Automobile – Malaysia (UNDERWEIGHT)

malaysia car market share

Lacklustre finish. Auto sales in December rose 32% mom but declined 6.6% yoy to 64,822 units. The strong mom increase was expected due to the year-end promotions and discounts given by carmakers. The yoy decline was due to a high base in Dec 16 as consumers brought forward their purchases ahead of price hikes effective 1 Jan 16. MAA expects Jan 17 sales volume to be lower than Dec 16’s, given that: a) heavy discounts and promotions by carmakers resulted in many sales concluded in Dec 16, and b) January is a short working month due to the Lunar New Year festival. Overall, 2016 TIV performance declined 13% yoy to 580,240 units, making up 102% of our TIV forecast. 

● National segment sales volume for December rose 38.7% mom, whereby Perodua’s strong 59.4% mom increase in sales volume mitigated a 1.5% mom decline in Proton’s sales volume. Perodua’s strong mom performance may be attributed to its first sedan, Bezza which was launched in mid-Jul 16. On a 12M16 cumulative basis, Perodua’s sales volume was up 18.5% yoy to 207,110 units, while Proton’s sales volume shed 16.8% yoy to 72,290 units. Going into 2017, Perodua aims to sell 202,000 units of vehicles and is also aiming for a slightly
lower market share of 34% (2016: 35.7%). 

● The non-national vehicle segment sales volume rise 38.7% mom and 5.1% yoy to 32,375 units. All major Japanese marques (except Mazda) saw mom increases:
a) Toyota’s sales volume rose 15% mom but down 44% yoy to 7,347 units. 12M16 sales volume declined 10.3% yoy to 63,757 units. The significant yoy decline was due to front-loading by consumers in anticipation of price hikes by Toyota effective 1 Jan 16. The improved
performance in the last two months of 2016 can be attributed to its all-new Vios, which was launched in early-October. It recently launched the all-new Innova MPV in Dec 16 priced between RM109,000 to RM126,000.
b) Honda sales volume rose 28.7% mom and 6.6% yoy to 11,461 units. 12M16 sales volume increased by 22.6% yoy to 91,830 units, surpassing that of Proton’s which stood at 72,290 units. It recently launched a new CKD seven-seat SUV, BR-V priced at RM85,800 – RM92,800 that comes with free service interval package.
c) Nissan’s sales volume rose 57.5% mom but declined 5.3% yoy to 4,804 units. 12M16 sales volume rose 5.8% to 40,706 units.
d) Mazda’s sales volume declined 24.8% mom and 57.2% yoy to 603 units, which may be due to lack of new models and fewer promotions and discounts offered as compared with its Japanese peers. 12M16 sales volume rose 5.8 % yoy.

Peer Comparison:automobile stocks compared
● Maintain 2017 TIV forecast of 580,000 units (flat yoy). Although we foresee a strong pipeline of new models and continuous aggressive discounting and promotions in 2017, we have yet to see a strong recovery in consumer sentiment, particularly purchases on big-ticket items, against the backdrop of subdued macroeconomic environment. MAA has set its 2017 TIV forecast at 590,000 units.
● Maintain UNDERWEIGHT on the sector, as we expect operating environment to remain challenging for the rest of 2016. Sales volume will remain depressed due to soft consumer spending. More aggressive promotions driven by stiff competition coupled with high input
costs due to the prolonged ringgit weakness will continue to crimp margins. Despite the demerger from its loss-making 55.7%-owned listed UMW O&G, we remain negative on UMW Holdings as all of its major divisions are operating in challenging environments coupled
with many non-performing non-core assets.
Yield play on Bermaz Auto. Despite the softness in its 2QFY17 results, Bermaz Auto’s earnings remained more resilient than its listed auto peers’ due to its low base and zero debt position. We see BJ Auto as a yield play for now with a yield of 6.4% for FY18 (based on
an estimated 80% dividend payout). However, we note that there are downside risks to our earnings forecasts on weaker-than-expected consumer sentiment and sharp appreciation of the yen against the ringgit.

source: UOBKayHian Research 20/1/2017